Equity theory states that perceptions of equality in the input/outcome ratio of employees determines their relative job satisfaction.
Explain equity theory
- Equity theory was developed in 1963 by John Stacey Adams, who stated that an employee will consider himself to be fairly treated if the ratio of his inputs to outcomes is equivalent to those around him (by his perception).
- Inputs include effort, time, loyalty, seniority, commitment, personal sacrifice, etc. Outcomes, on the other hand, include salary, benefits, job security, reputation, sense of achievement, gratitude, etc.
- According to equity theory, the person who gets “too much” and the person who gets “too little” both feel distressed. The person who gets too much may feel guilt or shame. The person who gets too little may feel angry or humiliated.
- (1) Individuals try to maximize outcomes
- (2) [a] Groups will evolve systems of equity, and induce members to adhere to these systems
- [b] Groups will reward those who treat others equitably, and punish those who don’t.
- (3) Individuals in an inequitable relationship feel ‘distressed’. Those who get too little feel angry/humiliated, while those with too much feel guilt or shame.
- (4) Those in distress will attempt to eliminate the inequity, in order to eliminate the distress.
- 3 Primary assumptions:
- (1) Employees except a fair return for their contribution
- (2) Employees can and do determine what an equitable return should be by comparing themselves to coworkers
- (3) Distressed employees attempt to fix an inequitable situation by distorting inputs and outcomes in their own minds, by actually changing inputs/outcomes, or by leaving the organization.
- Implications of Equity Theory:
- – The value of inputs and outcomes will vary from person to person
- – Employees may adjust outcomes according to purchasing power and local market conditions
- – An overcompensated employee may adjust their efforts, or may inflate the value of their inputs in their mind, adopting a sense of superiority and thus decrease their efforts.
- – Some say the model is too simple; there are other variables that affect people’s perceptions of fairness which vary from person to person
- – Much theory related to Equity Theory has been conducted in laboratories and not real world settings
- Inputs: Each participant’s contributions that are viewed as entitling him/her to rewards or costs. Examples include time, effort, and loyalty.
- outcomes: The positive and negative consequences that an individual perceives to be a result of his/her actions. Examples include praise, bonuses, and promotions.
- ratio: The relative magnitudes of two quantities (usually expressed as a quotient).
- equity theory: an attempt to explain relational satisfaction in terms of perceptions of fair or unfair distributions of resources within interpersonal relationships
Equity theory was first developed in 1963 by John Stacey Adams, a workplace and behavioral psychologist, who asserted that employees seek to maintain equity between the inputs that they bring to a job and the outcomes that they receive from it, against the perceived inputs and outcomes of others.
For example, if an employee was given a salary increase but a peer was given a larger salary increase for the same amount of work, the first employee would evaluate this change, perceive an inequality, and be distressed. However, if the first employee perceived the other employee being given more responsibility and therefore relatively more work along with the salary increase, then the first employee may evaluate the change, conclude that there was no loss in equality status, and not resist the change.
An individual will consider that he is treated fairly if he perceives the ratio of his inputs to his outcomes to be equivalent to those around him.
Defining Inputs & Outcomes
Inputs are defined as each participant’s contributions to the relational exchange and are viewed as entitling him/her to rewards or costs. The inputs that a participant contributes to a relationship can be either assets (entitling him/her to rewards) or liabilities (entitling him/her to costs). Individual traits such as boorishness and cruelty are seen as liabilities entitling the possessor to costs. Inputs typically include:
- Personal sacrifice
- Support from coworkers and colleagues
Outcomes are defined as the positive and negative consequences that an individual perceives a participant has incurred as a consequence of his/her relationship with another. When the ratio of inputs to outcomes is close, then the employee should be very satisfied with their job. Outcomes can be both tangible and intangible.
Typical outcomes include:
- Job security
- Sense of achievement
Four Propositions of Equity Theory
- Individuals will try to maximize their outcomes.
- A) Individuals can maximize collective rewards by evolving accepted systems for equitably apportioning resources among members. Thus, groups will evolve such systems of equity, and will attempt to induce members to accept and adhere to these systems. B) Groups will generally reward members who treat others equitably and generally punish members who treat each other inequitably.
- When individuals find themselves participating in inequitable relationships, they will become distressed. The more inequitable the relationship, the more distress they will feel. According to equity theory, the person who gets “too much” and the person who gets “too little” both feel distressed. The person who gets too much may feel guilt or shame. The person who gets too little may feel angry or humiliated.
- Individuals who discover they are in inequitable relationships will attempt to eliminate their distress by restoring equity.
Three Primary Equity Theory Assumptions Applied to Most Businesses
- Employees expect a fair return for what they contribute to their jobs, a concept referred to as the “equity norm.”
- Employees determine what their equitable return should be after comparing their inputs and outcomes with those of their coworkers, a concept referred to as “social comparison.”
- Employees who perceive themselves as being in an inequitable situation will seek to reduce the inequity either by distorting inputs and/or outcomes in their own minds, by directly altering inputs and/or outcomes, or by leaving the organization.
Implications for Managers
Equity theory has several implications for business managers:
- People measure the totals of their inputs and outcomes. This means a working mother may accept lower monetary compensation in return for more flexible working hours.
- Different employees ascribe personal values to inputs and outcomes. Thus, two employees of equal experience and qualification performing the same work for the same pay may have quite different perceptions of the fairness of the deal.
- Employees are able to adjust for purchasing power and local market conditions. Thus a teacher from Alberta may accept lower compensation than his colleague in Toronto if his cost of living is different, while a teacher in a remote African village may accept a totally different pay structure.
- Although it may be acceptable for more senior staff to receive higher compensation, there are limits to the balance of the scales of equity and employees can find excessive executive pay demotivating.
- Staff perceptions of inputs and outcomes of themselves and others may be incorrect, and perceptions need to be managed effectively.
Expectancy Theory postulates that an individual’s motivation can be derived through identifying an appropriate expectation.
Understand the three relationships and four variables that result in Expectancy Theory
- Victor Vroom at the Yale School of Management put forward a concept called Expectancy Theory, which suggests behavior is motivated by an anticipated outcome.
- There are three interactions: expectancy (effort → performance ), instrumentality (performance → outcome), and valence (outcome → reward).
- Expectancy allows an individual to move from effort to performance, and is predicated upon the belief that one can accomplish a given goal.
- Instrumentality is confidence that a given performance will result in the desired reward. This is best enabled through an established relationship or contract that guarantees the reward.
- Valence is the degree to which this reward matters to the individual being motivated, which could be pictured as a spectrum. The higher the valence, the higher the motivation.
- self-efficacy: One’s belief that he or she can accomplish a given objective.
- valence: A value assigned to an object, behavior, or other consequence that has relative scale.
Expectancy Theory, initially put forward by Victor Vroom at the Yale School of Management, suggests that behavior is motivated by the anticipated result or consequences expected. The concept of choice is central to this theory, as there are a variety of behaviors that an individual could potentially choose. To anticipate what choice will be made, identify what consequences would be expected as an outcome, and select the motivation which will result in the optimal outcome.
The Building Blocks
Expectancy Theory boils down to a few simple variables, which in conjunction produce the projected outcome based upon the motivational inputs. This is described as three relationships using four inputs:
- Expectancy: effort → performance (E→P)
- Instrumentality: performance → outcome (P→O)
- Valence: V(R) outcome → reward
What you’ll notice is a full equation, where each variable leads to the next:
Effort (E) → Performance (P) → Outcome (O) → Reward (R)
Moving from effort to performance requires three things. First is self-efficacy, or the belief that one can accomplish the goal. Second is the appropriate goal difficulty. Third is the perception of control, the concept that accomplishing the objectives is within one’s influence.
To move from performance to outcome, the individual must trust that the delivery of a given output will result in the desired reward. An example of this could be a commission on a sale. Established policies in place, preferably via a contract, will guarantee the reward will be delivered based upon an agreed upon performance.
This is simply the valuation of a given reward from the individual being motivated. This can be intrinsically positive or negative, which is to say the pursuit of OR avoidance of an outcome. This is why it is called a valence. Based upon the values, desires, and objectives of an individual, the individual will have a certain valued reaction to the reward. If one reward has a more extreme valence than another, it will consequently result in a higher level of motivation.
Expectancy Theory combines these three concepts into the conclusion that these three interactions will ultimately create a desired motivational response.
If done correctly, having more specific and well-enumerated goals lead to higher performance and a greater chance of achieving those goals.
Explain the procedures and outcomes of goal setting
- According to the theory, goal setting affects outcomes in four ways: choice (focus on goal-relevant activities); effort (an enumerated target can raise effort); persistence (goals focus employees to work through setbacks); and cognition (change inefficient behaviors).
- Goal-setting helps managers: since managers cannot consistently drive motivation and monitor employee activities, goal setting can work as a self-regulatory mechanism for employees to work with less guidance and oversight.
- Do not encourage employees to “do their best. ” Instead, specific goals should be set, that are both challenging as well as realistic. It is best if these goals are set after deliberation with the employee in question.
- For employees to care about goals that are set, six interdependent factors need to be considered: importance of the expected outcomes to the employee; self efficacy; commitment to others; goal feedback; task complexity; and goal motivation.
- Feedback is particularly important, in order to sustain motivation and commitment, as well as to ensure that efforts are correctly guided.
- It is important that the goals of a manager align with the goals of the organization as a whole. Another limitation is that rigorous goal setting may hamper complex and creative tasks, as individuals become preoccupied with meeting the goals rather than performing tasks.
- Locke and Latham (2002) urge managers not to encourage employees to “do their best”. They state that this attitude is useless in eliciting specific behavior. Instead, specific goals should be set, which are both challenging as well as realistic. It is best if these goals are set after deliberation with the employee in question.
- For employees to care about goals that are set, 6 interdependent factors need to be considered: Importance of the expected outcomes to the employee, Self Efficacy, Commitment to others, Goal feedback, Task complexity, Goal Motivation.
- Feedback is particularly important, in order to sustain motivation and commitment, as well as to ensure that efforts are correctly guided.
- Goal setting has limitations. It is important that the goals of a manager – and of specific individuals – align with the goals of the organization as a whole. If goals are not aligned, performance may suffer. Another limitation is that rigorous goal setting may hamper complex tasks, as individuals become preoccupied with meeting the goals rather than performing tasks. This may also be true with particularly creative work, where setting rigorous goals may hamper the creative process.
- goal: a result that one is attempting to achieve
- self-efficacy: the measure of the belief in one’s own ability to complete tasks and reach goals
- cognitive: the part of mental function that deals with logic, as opposed to affective which deals with emotions
Goal Setting Theory
Setting goals affects outcomes in four ways:
- Choice: Goals direct efforts towards goal-relevant activities and away from distractions.
- Effort: Goals can lead to more effort; for example, if one typically produces four widgets an hour, and has the goal of producing six, one may work more efficiently as a result.
- Persistence: People become more likely to work through setbacks if pursuing a goal.
- Cognition: Goals can lead individuals to develop and change their behavior.
Goals that are difficult to achieve and specific tend to increase performance more than goals that are not. A goal can become more specific through quantification or enumeration (should be measurable), such as by demanding “…increase productivity by 50%,” or by defining certain tasks that must be completed.
Psychologists have examined the behavioral effects of goal-setting, concluding in 90% of laboratory and field studies that specific and challenging goals led to higher performance than when the goals were easy or did not exists.
While some managers believe it is sufficient to urge employees to “do their best,” psychologists have disagreed on this style’s effectiveness. Some psychologists have found that people who are told to “do their best” don’t. To elicit some specific form of behavior from others, it is important that all employees have a clear understanding what is expected. “Doing their best” does not provide that clear measure. A goal is important because it establishes a specified direction and measure of performance.
However, when goals are established at a management level and thereafter solely laid down, employee motivation with regard to achieving these goals is rather suppressed. To increase motivation, employees must be involved in the goal setting process and the goals must be challenging as well.
People perform better when they are committed to achieve certain goals. Goal commitment is dependent on:
- Importance of the expected outcomes of goal attainment
- Self-efficacy – one’s belief that he is able to achieve the goals
- Commitment to others – promises or engagements to others can strongly improve commitment
- Feedback – keep track of performance to allow employees to see how effective they have been in attaining the goals to ensure that any deficiencies are quickly corrected.
- Task complexity – more difficult goals require more cognitive strategies and well-developed skills. The more difficult the tasks, the smaller the group of people who possess the necessary skills and strategies. From an organizational perspective it is thereby more difficult to successfully attain more difficult goals since resources become more scarce.
- Employee motivation – the more employees are motivated, the more they are stimulated and interested in accepting goals.
These success factors are interdependent. For example the expected outcomes of goals are positively influenced when employees are involved in the goal setting process. Not only does participation increase commitment in attaining the goals that are set, participation influences self-efficacy as well.
Goal-commitment, the most influential moderator, becomes especially important when dealing with difficult or complex goals. If people lack commitment to goals, they lack motivation to reach them. To commit to a goal, one must believe in its importance or significance.
The enhancement of performance through goals requires feedback. Goal setting and feedback go hand in hand. Without feedback, goal setting is unlikely to work. Providing feedback on short-term objectives helps to sustain motivation and commitment to a goal. Besides, feedback should be provided on the strategies followed to achieve the goals and the final outcomes achieved as well. Feedback on strategies to obtain goals is very important, especially for complex work, because challenging goals put focus on outcomes rather than on performance strategies, so they impair performance.
Proper feedback is also very essential, and the following hints may help for providing a good feedback:
- Create a positive context for feedback.
- Use constructive and positive language.
- Focus on behaviors and strategies.
- Tailor feedback to the needs of the individual worker.
- Make feedback a two-way communication process.
Goal-setting may have little effect if individuals can’t see the state of their performance in relation to the goal. By gauging their performance, individuals can determine whether they need to work harder or changing their methods.
Goal-setting theory has limitations. In an organization, a goal of a manager may not align with the goals of the organization as a whole. In such cases, the goals of an individual may come into direct conflict with the employing organization. Without aligning goals between the organization and the individual, performance may suffer. Moreover, for complex or creative tasks, goal-setting may actual impair performance because the individual may become preoccupied with meeting goals and not performing tasks.
Reinforcement theory, or operant conditioning, is a implementation of cause and effect thinking into workplace motivation.
Recognize the role of cause and effect via reinforcement in motivating good performance
- B.F. Skinner originally founded the basic premise behind Reinforcement Theory, which is best described as cause and effect. When a behavior occurs, individuals associate the consequences with the behavior.
- Reinforcement, be it positive or negative, increases a behavior. This is best done through rewards or the removal of frustrations.
- Punishment, be it positive or negative, is designed to decrease a behavior. This is best done through providing an adverse response.
- Various factors can influence the efficacy of reinforcement. Most notably, the size, immediacy, and need for a given reward (or level of avoidance for a given punishment).
- reinforcement: The process of repeating a behavior with desirable consequences.
The basic premise behind B.F. Skinner’s Theory of Reinforcement is both simple and intuitive: an individual’s behavior is a function of its consequences. Think of it as a simple cause and effect graph. Every behavior will be a cause that creates some sort of consequence as an effect. If I work hard today, I’ll make more money. If I make more money, I’m more likely to want to work hard. This creates behavioral reinforcement, where the desired behavior is enabled and promoted by the desired outcome from a behavior.
The Primary Inputs
This theory relies on four primary inputs or aspects of operant conditioning, generated from the external environment. These four inputs are positive reinforcement, negative reinforcement, positive punishment, and negative punishment. A fifth input could be described as extinction, which is a lack of reinforcement for a behavior that had previously been reinforced.
Positive reinforcement: When a behavior (and subsequent response) is rewarding, the frequency of that behavior will be increased. For example, if an employee identifies a new market opportunity that creates profit, an organization may give her a bonus. This will positively reinforce the desired behavior.
Negative reinforcement: When a desired behavior is responded to with the removal of something the individual doesn’t like, the behavior is reinforced. For example, an employee demonstrates a strong sense of work ethic and wraps up a few projects faster than expected. This employee happens to have a long commute. The manager tells the employee to go ahead and work from home for a few days, considering how much progress she has made. This is an example of removing a negative stimuli for reinforcing a behavior.
Positive punishment: Conditioning at it’s simplest, punishment is simply identifying a negative behavior and providing an adverse stimuli to dissuade future instances. A simple example would be suspending an employee for inappropriate behavior.
Negative punishment: Similar to negative reinforcement, negative punishment revolves around removing something to condition a response. To use our previous example for negative reinforcement, an employee prefers to work at home. However, his performance has been suffering lately. A negative punishment would be to revoke the right to work at home until performance improves.
Factors Impacting Success
Reinforcement can be impacted by various factors:
Satiation – In short, the degree of need. If an employee is quite wealthy, for example, it may not be particularly helpful to offer a bonus.
Immediacy – The time between the desired behavior and the potential reinforcement will have impact on how significantly the reinforcement will be correlated with the behavior. To use the bonus example, if an employee does something great, don’t wait around to provide a bonus. Make sure it’s fresh in their minds; this helps associate the outcome cause with the effect.
Size – Of course, the scale of the reward or punishment has a big impact on the scale of the response. A bigger bonus means a bigger impact (to a degree, see the satiation aspect above).