Organizational justice theory provides a model through which perceptions of fairness and equity by those affected by change can be explored and understood. OJT combines social psychological theories and psychological contract models to explain fairness judgments. Based on an individual’s perception of fairness within their organization, three typologies of OJT have been defined; i) Distributive justice refers to the perceived fairness of decision outcomes and is judged by measuring whether rewards are proportional to costs (Homans, 1961, cited in Colquitt, 2006), whether outcomes stick to expectations (Blau, 1964, cited in Colquitt, 2006), and whether outcome/input ratios match those of a comparison other (Adams, 1965). ii) Procedural justice refers to the perceived fairness of decision-making procedures and is judged by gauging whether procedures are accurate, consistent, unbiased, and correctable (Leventhal, 1980, cited in Colquitt, 2006), and open to employee input (Thibaut & Walker, 1975, cited in Colquitt, 2006); iii) Interactional justice refers to the perceived fairness of the performance or
implementations of procedures (Bies & Moag, 1986, cited in Colquitt, 2006). Implications of negative justice perceptions could be seen in an individual’s behavioral response to perceived inequity of rewards. Based on exchange theories of organizational and social behavior, individuals will compare the ratio of their inputs (e.g. education, skills, effort, experiences) to outcomes (e.g. pay, promotion, recognition) with that of a referent other, and will strive to restore their perceived balance of rewards through a behavioral response.
An organization’s policies often signal what the organization believes to be important and can enhance employees’ trust and confidence in the organization (Tyler and Lind, 1992, cited in Brown. Et al., 2010). Individuals can look to the fairness of organizational policies in order to gain insight into the type of treatment they can expect to receive from the organization. Fair policies not only establish what the organization considers to be appropriate treatment but policies also build employees’ expectations that this treatment will occur (Sitkin and Bies, 1994, cited in Brown. Et al., 2010). Unfair policies, in contrast, can signal to employees that they might experience unfairness and/or have difficulty meeting their needs in the organizational environment. Although individuals may consider procedural justice to determine the probability of future mistreatment, we argue that policies provide a more reliable source as policies are relatively stable, enduring, and often provide explicit guidelines for future treatment by the same or other managers in the organization.
2.1 Details of cases (Critical thinking questions no.5, pp 109)
Several service representatives are upset that the newly hired representative with no previous experience will be paid $3,000 a year above the usual starting salary in the pay range. The department manager explained that the new hire would not accept the entry-level rate, so the company raised the offer by $3,000. All five reps currently earn salaries near the top of the scale ($15,000 higher than the new recruit), although they all started at the minimum starting salary a few years earlier. Use equity theory to explain why the five service representatives feel inequity in this situation.
3. Problem Identification by Niek Ling Keong
Equity theory focuses on the concept of how hard a person is willing to work is dependent on their perception of what is fair or just when compared to others (Redmond, 2010). In the early sixties, John Stacey Adams proposed that employee motivation is impacted by whether or not the employee believes that their employment benefit/rewards (output/outcomes) are at least equal to the amount of the effort they put into their work (input). If an employee believes their outputs are not equal to or greater than their input, then the employee will become de-motivated. Employees will often compare their inputs and outputs to a peer within the organization when judging whether or not the outputs that they receive are fair. In this case, five service representatives feel inequity in their company because they did not get high salary ($3,000) compared to those new recruits even though they all started at the minimum level few years earlier. When a person perceives his/her input/outcome ratio to be unequal with a comparison other, inequity results, they may choose to use cognitive (e.g., adjust perceptions of referent others’ inputs or outcomes) or behavioral (e.g., increasing or decreasing inputs) approaches to resolve the inequity. However, individuals subjected to the same inequitable situations often respond in different ways, suggesting that there may be individual differences in sensitivity to inequity (Redmond, 2010).
Specifically, research suggests that individuals are differentially sensitive to disparities in outcome/input ratios between themselves and their referents, which helps to explain why there are differences in reactions among individuals to the same unfair situations.
Equity theory can be broken down into four basic schemes (Huseman, Hatfield, & Miles, 1987, cited in Redmond 2010)
1. Individuals develop their perception of fairness by calculating a ratio of their inputs and outcomes and then comparing this to the ratio of others (Huseman, et. al., 1987). Inputs are the value proposition of individuals, such as their productivity, time, and education. Other examples include the experience, knowledge, ability, qualifications and ambition of the individual (Cory, 2006). Outcomes are the rewards an individual receives. These rewards can be tangible, such as financial compensation, or intangible, such as recognition or job security. The comparable other could be a co-worker, a relative, the industry norm, a friend, or even a group of individuals (Adams, 1963). The comparable other can even be oneself in a past job (Adams, 1963). For example, an individual may not perceive he is being treated fairly when he works 40 hours per week (input) and receives $500 in pay (output) while his co-worker works 30 hours per week and receives $650 in pay. In this critical question, the five representatives think that those new recruits don’t have previous experience, same with them who start work at the minimum level few years ago. However, the salary earn by those newly hired representatives are higher than the salary earned by senior representatives.
2. If the comparative ratios are perceived by the individual to be unequal, then inequity exists (Huseman, et. al., 1987). According to equity theory, an individual needs to perceive that the ratios of their contributions are weighted fairly: determined by equal ratios. Equity is all about balance (Spector 2008). Equity is present when a person feels that they are receiving the appropriate amount of outcomes from their inputs, when compared to their chosen comparison other. Inequity exists when there is a perceived difference in the ratios of inputs and outcomes. Two specific types of inequity exist: underpayment inequity and overpayment inequity. Underpayment inequity occurs when an individual perceives that their ratio is smaller than their comparison other: they are getting less for their inputs. For example, if someone feels they are putting in more effort or working harder than a co-worker, yet they earn equal or less compensation, their perceived ratios will be different and that person will experience underpayment inequity. In contrast, overpayment inequity tips the scales in the other direction. For example, someone will feel they are being paid too much considering their work, when compared to the work and compensation of a co-worker. This can cause feelings of guilt and the ratios used for comparison are based upon the perception of an individual, and not an objective measure of inputs and outcomes. Additionally, the choice of a comparison other is also the subjective selection of the individual. While in this case, the senior representatives feel inequity of overpayment exists due to the higher salary in comparative ratios to the newly representatives.
3. As the difference in inequity increases, the tension and distress felt by an individual will increase (Huseman, et. al., 1987). Smaller differences of inequity are more tolerable than significant differences of inequity. Not every person will experience equity or inequity in the same way because people have varying tolerance levels or sensitivity to perceived situations of inequity. Three types of individuals have been identified along an equity sensitivity scale: compassionate, equity sensitives, and entitled (Huseman, et. al., 1987). Benevolents are more tolerant of underreward (Huseman, et. al., 1987). Equity sensitives follow the norm of equity theory and prefer their ratios to be equal to their comparison other (Huseman, et. al., 1987). Entitleds prefer to be in over-reward situations and want their ratio to exceed that of their comparison other (Huseman, et. al., 1987). Entitleds frequently have the attitude that the world owes them a favor, so they will freely accept and seek out over-reward situations. In this critical study of question, five representatives are perceived as entitleds since they still think the company owes them a good turn although they earn $15,000, which is near the top scale of salary and is higher than the new recruits.
4. The greater tension an individual feels due to perceived inequity, the harder they will work to decrease their tension and increase perceived levels of equity (Huseman, et. al., 1987). Most individuals will try to achieve equity by adjusting their own inputs and outcomes, or attempting to change the inputs or outcomes of the comparison other. Individuals can use behavioral processes or cognitive processes in order to attempt to restore equity. Examples include decreasing productivity at work, finding a new job, asking for a wage increase, changing the comparative other, or attempting to distort or justify changes in their perceptions of inputs and/or outcomes (Adams, 1963). The means of reducing inequity will vary depending on the situation and will not all be equally satisfying to an individual (Adams, 1963).
4. Source of the problem by Ng Hui Ming
Equity theory deals with two questions: (1) What do people think is fair and equitable? And (2) How do they respond when they feel they are getting far more or far less from their relationships than they deserve? How do they react when they see their fellows harvesting undeserved benefits – or enduring undeserved suffering? Interestingly, Lind and Van den Bos (2002, cited in Sora, B. et al. 2010) conceptualized the integration of justice with stress through uncertainty management theory. This model can be summarized by the following principle: ‘people use fairness to manage their reactions to uncertainty, finding comfort in related or even unrelated fair experiences and finding additional suffering in unfair experiences’ (Lind and Van den Bos, 2002: 216, cited in Sora, B. et al. 2010). In other words, work uncertainty is perceived as a threatening situation for employees. In this setting, employees tend to seek certainty and security, and one way to obtain them is through developing fairness judgements that make the uncertain event more predictable. Organizational justice is an effective tool to reduce the feelings of uncertainty and, therefore, lessen the discomfort to a great extent (Elovainio et al., 2005; Judge and Colquitt, 2004; Thau et al., 2007, cited in Sora, B. et al. 2010). In this case, the inequity judgment by those five service representatives that new employees will be getting more pay of salary has caused them to feel unsecure. This is say so because the salaries earn by new recruits now are higher than the time senior representative earned. They worry that those newly hired workers will earn much than them in a very short time since the newly recruits’ starting salary already higher than them compare to the time they started at minimum level.
In this critical question, the five senior representatives feel they are facing underpayment equity, they feel that the salary they earn when working at the starting minimum level are lower than those newly recruits now. The senior representatives feel very upset and dissatisfy because manager explained that the newly hired would not accept the previous entry level rate. The newly representatives have no previous experience, but why still being paid $ 3,000 yearly above the usual staring salary in the pay range.
Comparison between the situations faced by two groups of representatives
5. Learning outcomes by Ng Hui Ming
After completing this study of paper, we should be able to:
a. Identify what is Equity theory and under payment equity.
b. Balance or correct the inequity feelings of employees towards co-workers.
c. Know what managers can do to overcome/ reduce the perceptions of inequity by employees.
6. Responses to inequality by Ng Hui Ming
Equity theory suggests that when individuals perceive inequality between their own outcome/input ratio and that of the comparison referent, they are motivated to respond. Specifically, equity theory outlined six possible responses that individuals may take to restore equity: a) change their inputs, b) adjust their outcomes, c) distorts their inputs and outcomes cognitively, d) leave the situation, e) act on the comparison referent to influence its inputs or outcomes, and f) compare to a different referent. There is little information, either in Adams (1965), or in subsequent work, that predicts when individuals will choose a particular response option. Equity theory comprises four linking suggestions:
SUGGESTION I: Individuals try to maximize their outcomes (where outcomes equal rewards minus costs).
SUGGESTION IIA: Groups can maximize collective reward by evolving accepted systems for equitably apportioning resources among members. Thus, groups will develop such systems of equity, and will try to persuade members to accept and stick to these systems. SUGGESTION IIB: Groups will generally reward members who treat other equitably, and generally punish (increase the costs for) members who treat others inequitably.
SUGGESTION III: When individuals find themselves participating in inequitable relationships, they will become distressed. The more inequitable the relationship, the more suffering individuals will feel.
SUGGESTION IV: Individuals who discover they are in an inequitable relationship will attempt to eliminate their distress by restoring equity. The greater the inequity that exists, the more distress they will feel, and the harder they will try to restore equity.
7. Choose alternatives to solve inequality by Loh Sin Yee
One behavioural approach for an individual to balance equity is to either increase or decrease their inputs in order to achieve equity. If they feel underrewarded they will decrease their inputs. For example, an employee who feels underpaid at work compared to his coworkers (underreward) might start taking longer breaks in order to read the entire newspaper which decreases productivity (reduced input). By decreasing inputs, the perception of equity is restored.
Thus, consistent with uncertainty management theory and with the assumption that job insecurity reflects uncertainty about job loss, we would expect that organizational justice related to organizational aspects such as resource distribution, personal treatment and processes could be related to employees’ outcomes and moderate the relationship between job insecurity and its outcomes. That is, organizational justice could help employees to deal with the uncertainty of job insecurity, justifying the negative outcomes of job insecurity and, therefore, preventing deterioration of job satisfaction.
8. Team reflection by Loh Sin Yee
A concern with fairness or justice is critical to the management of numerous organizational issues (e.g., pay distribution, grievance resolution; Greenberg, 1990, cited in Kilbourne, L.M., O’Leary-Kelly, A.M. (1994). In fact, in any distribution of outcomes (positive or negative) across individuals, employee perceptions of fairness are important. Because these perceptions of fairness are related to both organizational functioning and employee satisfaction (Greenberg, 1990; Leventhal, 1980, cited in Kilbourne, L.M., O’Leary-Kelly, A.M. (1994), organizational scholars and practitioner equally are interested in understanding them. As a result, managers must try to communicate with their employees frequently to understand their feelings or perceptions towards inequity or any dissatisfaction on work.
Adams’ (1965) equity theory proposes that an individual who believes an exchange is inequitable will be motivated to achieve equity or reduce inequity. According to the theory, individuals determine if exchanges are equitable by computing the ratio of perceived personal outcomes (rewards) to perceived inputs (contributions) and comparing this ratio with the perceived outcome/input ratio of some comparison referent that they have chosen. If inequality is perceived, the individual is expected to experience tension and to be motivated to respond either cognitively or behaviorally to restore equity.
By the way, an employer can also prevent consequences from perceptions of inequity. For example, Skarlicki and Folger (1997, cited in Redmond 2010) found that employees that are treated with respect are more likely to tolerate unfair pay. Whether the pay or compensation is actually unfair might be irrelevant. To the employee a perception of unfair compensation is the same as actual unfair compensation. So, if an employee has a perception of inequity in their compensation they might be more willing to tolerate their perception of unfair pay if they are treated with respect by their employer. Then they will be less likely to decrease their inputs or engage in counter-productive work behaviours to compensate for a perception of underpayment inequity. So, in addition to establishing fair distribution and procedures in an organization, employers should always treat their employees with respect. This can help maintain or increase motivation and prevent problems that stem from perceptions of under reward. Employers also need to remember that employees can value different outcomes. For example, younger employees tend to value more pay (Miles, et. al., 1994, cited in Redmond 2010). Even if an employee receives a higher salary than their co-worker they could still develop a perception of inequity if that co-worker has a flexible schedule, and a flexible schedule is more valuable to them than extra salary. To combat this problem, employers can implement two strategies. First, they could continually request feedback from employees to determine what they value and how they would prefer to be compensated. Another strategy used by employers is to offer a choice in benefits. For example, one employee might want to use a health flexible spending account while another employee might prefer to have a dependent care flexible spending account. Employers can offer choices on health or dental insurance as well as other choices among benefits. This type of plan, called a cafeteria style, allows employees to select outcomes that they value most. This can help prevent perceptions of inequity because each employee has the outcomes that they value the highest. This helps increase their ratio of inputs to outcomes when compared to their co-workers. Employers can also utilize intangible rewards such as a pat on the back, a luncheon, or even simple praise in front of co-workers. These simple intangible rewards can help balance a measure of inputs and outcomes.
9. Conclusion by Loh Sin Yee
After we have studied the problem and revised on the research done by several researchers, we can now understand about Equity theory and underpayment equity. Additionally, the five senior representatives must know how to balance or correct the inequity feelings towards newly hired representatives. They are encouraged to use the behavioural approaches to change the input or outcome of their comparative other.
Furthermore, it is important for managers to understand and prevent consequences from perceptions of inequity by employees. Equity theory of motivation, developed in the early 1960’s by Adams (1965), recognizes that motivation can be affected through an individual’s perception of fair treatment in social exchanges. When compared to other people, individuals want to be compensated fairly for their contributions. The organization may need to recognize the different interpretations inherent with such group of employees and devise a strategy for effectively managing their different perceptions.
10. References by Ng Hui Ming
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Adams, J.S. (1965). Inequality in social exchange. In L. Berkowitz (Ed.), Advances in experimental social psychology (pp.267-299). New York: Academic Press.
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Paula W. P. (2006). Procedural justice and voice effects. Journal of Organizational Culture, Communications and Conflict. Retrieved 23 Feb, 2011, from http://findarticles.com/p/articles/mi_m1TOT/is_1_10/ai_n25009730/.