Chapter 1 - 3

03 Business

Equity Theory

Equity theory was originally explained by a behavioral psychologist, John Stacy Adams, in 1963.

This theory attempts to explain an individual’s behavior within the context of striving toward equilibrium in a situation.

Equity theory claims that individuals act according to inequalities that they perceive in their environment.

When people observe an unequal situation, they experience distress.

This compels them to act in a way to achieve equity within the situation.

Equity theory is applicable to a number of realms.

It can be used to explain how individuals act in personal relationships.

It also has been employed extensively in the realm of business management.

For instance, employees that know they are being paid less than their coworkers for doing more work would feel under-compensated.

In an effort to correct this inequity, they might attempt to fix the observed inequity in a number of ways.

They might work less, talk to their managers, or attempt to motivate their coworkers to work harder.

Equity theory can also be applied to employees that perceive an inequity that favors them.

Employees who feel that they are getting too much in return for their input may attempt to remedy the situation.

They may work harder, argue for better pay for others, or take other measures to make the situation equitable.

By applying equity theory to actual situations in a workplace, managers can gain valuable insight into factors motivating their employees.

However, attempts to make practical sense of equity theory reveal its weaknesses.

Critics point out that not all employees will seek to correct inequalities in the workplace.

Non-confrontational people who feel under-compensated may continue to work in the inequitable conditions simply because they fear conflict.

Employees who are over-compensated, on the other hand, might be satisfied with the inequitable situation.

They may do nothing to change it for fear of hurting their position.

In short, equity theory unjustifiably presumes that individuals will value equity over all other factors.

Moreover, it fails to account for quirks in someone’s personality that might cause him or her to avoid addressing inequality.

A large criticism stems from the fact that equity theory only seeks to explain individuals’ responses to perceived inequalities between individuals.

Equity theory does not account for perceived inequities between individuals and systems.

For instance, an employee might feel equally compensated as compared to his or fellow employees.

However, he or she might feel that the business is not paying anyone enough.

Equity theory does not account for this.

These shortcomings highlight the impractical aspects of equity theory, which seems to oversimplify a very complex subject.

Ultimately, there are a number of factors that may influence how individuals act in any situation.

Their perception of inequalities is only a part of a much bigger picture.

Equity theory may be part of one person’s considerations in acting a certain way.

However, it is by no means a comprehensive explanation for individual behavior.