Introduction

• Concepts such as Justice, Fairness and Equity are of fundamental

importance in the workplace- mishandling can be dramatic
• Lawler (1973) argues persuasively that equity and discrepancy are the
two strongest theoretical explanations for satisfaction
• Given the importance of these "fairness" concepts, it is not surprising
that they have received a great deal of attention from social and
organizational theorists
• While each of the concepts makes a unique contribution, they have a
common thread—they deal with exchange relationships and the
fairness or equity of the exchange relationships
Equity Theory
• Adams Equity Theory- Most explicit and rigorously developed model
of how individuals evaluate social exchange relationships
• Adams' equity theory has stimulated the greatest amount of research
and allows the firmest statement about its specific predictions.
• The empirical work relevant to workplace equity has examined
payment- In underpayment conditions, the research support is
impressive but in overpayment conditions, the reports are far less
conclusive
• Whether underpayment or overpayment, these studies have an
aspect in common—they rarely consider time
Time
• Time has long been recognized as a fundamental variable in social
research - the behavior-reinforcement time lag, for example, is critical
to the administration of rewards or punishment
• Mayes (1978) incorporated time lag effects into the valence-
instrumentality-expectancy formulation
• The effects of time lag on leader-behavior descriptions have been
noted (Rush, Phillips, & Lord, 1981)
• The time dimension in equity theory, however, has been largely
ignored
Equity Theory
• Two aspects of equity theory have been subject to examination and
criticism:
• Negative outcome/input and the multidimensional nature of inputs
• Investigation of these issues has led to reformulation of the
fundamental concepts of equity theory, no studies have addressed
the issue of multiple inequity and its effects
• Because Equity Theory is dynamic, for an accurate reflecting of the
process aspect of worker response to inequity, a fair mathematical
representation requires a time parameter
Equity Model
• Key is the ratio of Inputs to outcomes
• Inputs include all factors (education, effort, experience, etc.) that a
person perceives as relevant for obtaining some return
• Outcomes include all factors seen to be returns on the individual's job
investment
• Inequity exists for Person (P) whenever he perceives that the ratio of
his outcomes (O) to inputs (I) and the ratio of Other's (o) outcomes to
Other's inputs are unequal (Adams, 1965, p. 280).
Equity Model
• These formulations are relevant under two broad categories
• First when Person and Other are in a direct exchange relationship and,
second, when both are in an exchange relationship with a third party
and Person compares himself with Other
• It should be noted that the object of comparison (Other) need not be
a specific individual- can be an abstraction or group
Equity Model
• In the equity condition the individual presumably is content and will
not act to imbalance the condition- most researchers agree with this
• Carrell and Dittrich (1978), However, argue that individuals may
believe that their ratio is consistent with relevant others but that the
system is patently unfair
• Workers, for instance, may bargain or even strike to obtain higher
wages or benefits, despite the consequences, which may lead to
inequity with other relevant groups
Assumptions of Inequity
• Four key assumptions of inequity are as follows:
1. Perceived inequity creates tension in an individual.
2. The amount of tension is proportional to the magnitude of the
inequity
3. This created tension motivates the individual to reduce it
4. The strength of the motivation to reduce the inequity is
proportional to the perceived inequity.
• A key point, according to Adams' theory, is that most individuals will
do something about it when they perceive inequity
Equity Theory Reformulation
• Inequity represented by :

• The term Oo/Io can be moved to the "left side" of the equation, and
some additional notation can be introduced
• Adams (1965) suggests that the magnitude of (Op/Ip) - (Oo/IO) is
related to feelings of tension (T) and using Beta to represent the
impact of inequity on tension, equation (1) can be expanded:
Equity Theory Reformulation
• Using Adams' (1965) proposition that motivational strength to reduce
tension will be proportional to the tension created, it can be written:

• * denotes that T is influenced by its prior values in the previous n time

periods in which Person was involved in a particular exchange
relationship
Equity Theory Reformulation
• Assuming that Person's total feelings of tension are influenced by a
geometrically declining weighted average of present and past levels of
tension that have occurred in a particular relationship, equation (3)
can be expanded to:

• λ = a weighting factor; O<λ<1, Time treated as discrete variable

• In the case of inequity, even though the impact may be continuous,
the causal events (hiring a new employee at a higher wage than
existing employees) typically will occur at discrete time intervals
Equity Theory Reformulation
• These time intervals may vary in length, but this possibility does not
affect the development of the model
• On the assumption of declining weighted average, Carrell and Dittrich
state:
• "Studies on the resolution of inequity and performance also suggest
that while individuals may act to resolve perceived inequity, the
perception is a transitory phenomenon and diminishes over time”
• By requiring λ to lie between zero and 1 and successively raising the
power of λ as the move is "backward" through time, the geometrically
declining series does represent a diminished impact of a transitory
phenomenon
Equity Theory Reformulation
• Equation (4) captures the notion that tension is affected more by
present than by past levels of inequity
• A more parsimonious model can be generated by using the Koyck
(1954) transformation
• Equation (4) must be multiplied by λ and rewritten for the time period
t-l as:
Equity Theory Reformulation
• Time period- there is no one number to define the length of each
time period, but any event that triggers a comparison defines the
beginning of a new time period
• The model assumes, however, that the prior experienced inequity is
not forgotten i.e. even if an inequitable pay situation is resolved "this
year," the previous pay inequity may still have some negative impact
• An interesting issue arises when current conditions change and affect
prior inequity- some underpaid months ago now in need for money,
thus making inequity more significant
Equity Theory Reformulation
• In cases such as this, the "new" situational factor would revise λ to a
value closer to 1
• Because the effects of previous levels of tension decline
geometrically, the Koyck (1954) transformation process can be used
to arrive at a model relating Mt to M t-1:

• Koyck transformation is an "ingenious" method of reducing an

equation with a potentially infinite series to manageable proportion
Equity Theory Reformulation
• Essentially, any geometrically declining weighted series could
continue indefinitely
• There is, however, some nth past period beyond which the weighting
factor would be effectively zero

• Model (equation 7) posits that motivational strength to reduce

tension is a function of current tension and previous motivational
strength to reduce tension.
Equity Theory Reformulation
• Walster et al. (1976) have shown that Adams' equity ratio formulation
may be inadequate in cases in which inputs might be negative and
thus provides an alternate formulation:
Equity Theory Reformulation
• Another alternate by Anderson and Farkas (1975)
Equity Theory Reformulation
• Model (equation 7) does not suggest that all inequity will lead to
action
• People will tolerate inequity until Mt reaches some threshold level
• The specification of an individual's threshold, however, is difficult
• The threshold most likely is a function of the importance of the
inequity, the costs involved in taking action, and the probability of
action resulting in resolution
• As importance declines, costs escalate, and the probability decreases,
the threshold should increase