Equity theory is a concept belonging to John S. Adams, a behavioural psychologist. The theory helps explain why your employees’ motivation levels can go up and down at work. Show As we’ve talked about many times here at BrightHR, your business needs motivated staff to operate at its full capacity. Otherwise, the standard of work and services that your staff produce will drop. Then, you risk losing customers. And after that, you lose revenue. A definition of equity theoryAdams devised his equity theory on the basis that when your employee feels like you’re treating them in an advantageous way, they’re more likely to be motivated to work hard. Their morale is high and they’re full of energy. And on the flip side, when one of your employees feels like you’re treating them unfairly, they’re more prone to demotivation because they don’t feel satisfied. Note: An employee’s feeling of unfair treatment doesn’t have to be because of something you have done to them—it can be because of how they compare their current situation to someone in a similar situation to them. Here, we’ll explain further. Equity theory can be a model for measuring how satisfied an employee is in their job. According to John S. Adams, your staff try to keep a balance between how much they give to you [inputs], and what they receive from your business in return [outputs]. But, what an employee thinks of their current input-output balance can change day-to-day if they think one of their colleagues currently has a better balance between what they give and what they get back. In the theory, Adams labelled the colleagues as “referents”. The referents are anybody your employee feels they are in a similar situation to—for example, if two people have the same job title and duties. An employee’s inputsPut in plain English, this refers to what one of your staff “puts in” to their job. What they give to you—their employer.
An employee’s outputsThis is what they get in return for all of their inputs.
Depending on what’s in someone’s contract, their company benefits could include things like a company phone or laptop, company car, travel expenses, childcare vouchers, private healthcare enrolment, retail benefits, flexible working, pension, and more. So, these are the inputs and the outputs. And we know that the referent is an employee in a similar or identical role. An employee’s response to inequity at workYour staff will typically value their salary above the other outputs. And so, salary concerns count for many examples of inequity among employees everywhere. If one of your team feels like their contributions, time, and effort are not earning the rewards they should be—especially when they think that colleague X, who earns a higher salary despite doing a similar job, does less work—you can expect a reaction. Your employee might begin to perform their work at a lower level. They might become unfriendly, even hostile, towards their co-workers or your management team. They might start looking for other jobs. Remember, your staff can experience a feeling of inequity without you changing their terms or their working conditions, and without you changing how you interact with them—if they think you’re treating their colleagues better than them. What can you do to stop demotivation in your workplace?1. ReviewsFirst, make sure all of your staff know how often you will perform salary reviews. The most common instances are:
Make sure you send your employee a calendar invite for any review meetings well in advance—this will show them that you’re thinking about their performance. It could also help your staff to regain any lost motivation. If they have a review date coming up, they know they need to impress you with their work and attitude. 2. Open door policySecond, have an open door policy. It should be common knowledge that if one of your staff has a problem, they can come and speak to you—but of course, this doesn’t mean you’ll automatically solve their problem. Otherwise, you’d have a queue of employees all ready to demand pay increases. 3. Use an employee assistance programmeWith an employee assistance programme [EAP], your staff have access to confidential, round-the-clock support from trained professionals. When your people feel at their best, they perform better and they take fewer sick days. And we all know that a healthier and more successful workplace is a happier workplace. Need help?In most workplaces, the term “equity theory” doesn’t even get a mention. But it's in play—everywhere. All BrightHR customers can get free employment law advice from our experts—we call them the BrightAdvice team. They can help you if you're unsure about equity theory or any other employment law topic. So, call 0800 783 2806 today to become a BrightHR customer for as little as £3 per month. Equity theory proposes that people value fair treatment, which motivates them to maintain a similar standard of fairness with their coworkers and the organization. Accordingly, equity structure in the workplace is based on the ratio of inputs to outcomes. Inputs are the employee's contribution to the workplace. Equity Theory [Adam's Equity Theory] explains the thought process an employee uses to determine the fairness of management decision making. The core of equity theory says that individuals judge the fairness of their treatment based on how others like them are treated. The equity theory of motivation is the idea that what an individual receives for their work has a direct effect on their motivation. When applied to the workplace, it means an individual will generally aim to create a balance between what they give to the organization compared to what they get in return. While evaluating fairness, employee compares the job input [in terms of contribution] to outcome [in terms of compensation] and also compares the same with that of another peer of equal cadre/category. D/I ratio [output-input ratio] is used to make such a comparison. EQUITY THEORY.
Ensuring that employees are competitively compensated relative to the external marketplace and their peers is an essential two-part function of the compensation plan. This analysis reflects two sides of the same coin: equity. Equity pay entails ensuring that all employees in an organization receive unbiased total rewards based on permitted internal and external factors. Equitable compensation has many benefits: reducing turnover, increasing cooperative behavior, decreasing counter-productive behavior, and ensuring legal compliance. The General Fair Pay Act provisions allow employees to disclose, discuss, and ask about their wages. Both employers and employees have a vested interest in making sure that pay is fair and that differences are not based on sex, race, ethnicity, or other protected categories. Ensuring an equitable pay strategy is a complex issue. Internal and external equity analysis allows an organization to evaluate its compensation plan based on the fairness of employee compensation. What’s the Difference?Internal equity refers to fairness of pay among current employees working for the same company and performing the same or similar jobs. An analysis of internal equity ensures that fairness is maintained throughout the organization based on similar responsibilities, performance, knowledge, skills, and experience. A good review is contingent on accurate job analyses and descriptions, not just job titles (which may be inflated), to provide the appropriate comparators. Pay grades are an example of a process that is designed to ensure internal equity. These structures ensure that individuals in an organization are compensated in a consistent manner relative to their peers, supervisors, and reports. External equity refers to fairness of pay against the external market. External equity compares what the company is willing to pay for talent versus what outside organizations competing for the same talent are willing to pay. It provides a basis for competitive job offers, salary adjustments, and salary structures. Equity exists when employees are rewarded fairly in relation to those who perform similar jobs in other organizations. Both internal and external equity factors are important tools used to define and implement a solid compensation strategy, resulting in effective management of employee total rewards. With the majority of expenses attributable to labor costs, consideration of both is vital to providing fair, equitable compensation and the ability to attract and retain the best talent. Why Do Internal and External Pay Equity Matter?Internal equity looks inside the organization to compare salaries and wages of employees in the same jobs. Analysis determines if the differences in pay are attributable to legitimate factors, such as performance or experience. If analysis reveals that a protected group is paid at a lower rate than the norm, further analysis is required to determine if pay practices (intentional or not) are creating disparate treatment. Perception is a key factor in internal equity. Employees often compare themselves to others who they believe are in comparable positions, but HR must know the jobs that they are comparing. This can create tension and lower morale. The result may be regrettable turnover or employees interviewing and receiving job offers in order to force the employer to evaluate and perhaps make a counteroffer, leaving the employee wondering, “Why not just pay me what I’m worth from the very beginning?” This can cause resentment in an otherwise effective and productive employee. External equity looks at factors such as market, company size, revenue, sales, location, and industry to compare salaries for qualified workers. This is typically accomplished using compensation surveys. The average salary for benchmark positions provides information to help determine if companies are paying their employees competitively. It is important to pay attention to market changes and stay current because failing to keep up with the competition can lead to the loss of valuable employees. A review of all jobs on a regular basis (at least annually) helps to keep an eye on compensation, to make necessary adjustments, and to ensure the compensation strategy remains fair and equitable. Having access to salary survey data and the resulting analyses, as well as taking the time to review your jobs, the organization’s needs, and strategic goals, are all critical to developing a solid understanding of the current labor force, both internal and external. Both internal and external equity warrant consideration; one is not more important than the other. Both should be considered when determining and maintaining a pay strategy that supports the organization’s strategy. The perception of fair pay is an important factor which can have a positive or negative effect on morale, productivity, and employee engagement. It is important to communicate regularly and honestly with employees about total rewards. Provide total rewards statements to educate employees, highlight perquisites, and explain benefits, in addition to base pay. Communicate the entire compensation package. Employees are savvy when it comes to their salaries and want to know that they are getting the package that meets their needs and expectations, just as the company does. For more information about total compensation and how to calculate total pay while taking into account internal and external equity, utilize ERI’s Salary Assessor. |