Equity theory is most closely associated with the work of J. Stacy Adams. In essence, equity theory deals with exchange relationships among individuals and groups. The theory holds that, in deciding whether or not they are being treated equitably or fairly, people compare what they are giving to an organization to what they and others are getting from the organization, that is the theory matches the notions of "a fair day-work for a fair day's pay".
Equity theory is based on the belief that employees will take whatever actions are necessary to produce feelings of equity with respect to their jobs. All employees bring a certain set of inputs to their jobs in the form of education, previous work experience, etc., and all employees receive certain outcomes in the form of pay, benefits, job satisfaction, prestige, etc. Equity theory states that if a person perceives an imbalance between his or her job inputs and the resulting outcomes, then the person will take the actions necessary to produce a balance between job inputs and outcomes. The table below lists some of the typical inputs and outcomes that are involved in this comparison process.
Inputs |
Outputs |
Education |
Par |
Experience |
Fringe benefits |
Training |
Job status |
Skill |
Seniority benefits |
Job effort |
Working conditions |
Seniority |
Job perquisites |
An important point regarding equity theory is that an individual's feelings of equity are based on his or her perceptions of inputs versus outcomes. Naturally, these perceptions are heavily influenced by what the individual sees as the inputs and outcomes of others. For instance, an employee might feel good about his or her pay until he or she finds out that others doing the same job are receiving substantially higher pay.
When a person concludes that, in comparison to others, what he or she is giving to the organization is equal to what is being received, equity exists. When one side of the equation (either the input or the outcome) is larger, an imbalance exists. The person feels angry (because of being underrewarded) or guilt (because of being overrewarded).
For example, it is not unusual for an employee to feel that he or she is underpaid for what he or she does when compared to other employees. According to equity theory, such employee's effort would be reduced to balance the inputs and outcomes. Although it occurs much less frequently, it is possible for an employee to feel that the outcomes received outweigh the inputs. In this situation, equity theory postulates that the employee would work harder to balance the inputs and outcomes.
Thus, the theory focuses on perceptions of inequity in the output/input ratio. Inequity leads to tensions and motivations to restore the balance. There are several possible responses for the person affected by feelings of inequity:
• Change outcomes: ask for more pay, different working conditions, or formal recognition with office, job title and responsibilities to match.
• Change inputs: reduce (or increase) effort, attendance, commitment, training and so on.
• Distort perceptions: distort the perceived difficulty or importance of jobs, or the rewards that flow from them.
• Quit: find a new job with closer balance.
Much of the work on equity theory has centered around compensation Preference-Expectancy Theory
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