Question 6
A three part question about J.S. Adams’ formulation of equity theory
a. Explain what Adams suggests employees do in making pay comparisons? (In other words, explain how equity theory operates. Be sure to define all terminology)
Adams’ equity theory is based on the concept that individuals compare the ratio of their contributions to the organization (inputs) to what the organization gives to them in return (outputs) to the input/output ratio of a comparable individual (significant other)
Individual Significant Other
Inputs/Outputs =? Inputs/Outputs
If the individual perceives that his ratio is lower than that of the significant other, he will feel that he is not recognized or rewarded for the contributions that he brings to the organization. He may seek “distributive justice” to bring the ratios to equality by either increasing the outputs (asking for a raise) or decreasing the inputs (reducing his production, effort, etc.)
Terms/Definitions:
Inputs: What an individual brings to the organization in exchange for outputs
Effort Education
Experience KSAOC’s
Outputs: Rewards; what an organization gives to the individual in exchange for inputs
Compensation Recognition
Self-actualization Esteem
Significant Others: comparison persons for this example
Co-worker Peer in another organization doing similar work
Another individual doing dissimilar work Self-felt fairness
b. Applying Equity Theory, why is it so difficult to satisfy employees with respect to compensation?
Individuals tend to seek out unfavorable comparisons (Dr. Drost slides) First, they look outside the organization, then inside. With so many potential significant others, they are bound to find someone who they perceive to have a higher input/output ratio. Dr. Drost used the example of Eric Dickerson, the great NFL Hall of Fame running back, who twice pushed the LA Rams to renegotiate his contract, was traded to Indianapolis and did essentially the same thing with them, insisting that the teams were not paying him what he was worth.

c. What are the managerial implications of employees seeking distributive justice when employees feel they are underpaid? Overpaid?
As stated above, if the individual perceives that he is underpaid (his ratio is lower than that of the significant other), he will feel that he is not recognized or rewarded for the contributions that he brings to the organization. He may seek “distributive justice” to bring the ratios to equality by either increasing the outputs (asking for a raise) or decreasing the inputs (reducing his production, effort, etc.)
There is little research to be found regarding an employee’s action if he perceives that he is underpaid; if Adams’ theory is extrapolated the employee would seek to decrease outputs (“no no, you’re paying me far too much….”) or increase his inputs (such as increasing his productivity or getting an MBA) in order to adjust the ratio. Dr. Drost suggests that employees probably find a way to rationalize the difference and do not make any effort towards distributive justice.