Equity theory was developed in 1963 by John Stacy Adams, an American workplace and behavioral psychologist.1 At the time of its conception, inequity was a prevalent concern in the fields of labor and government, but it was not fully understood. People were beginning to realize that equity between employees and employers was more than just an economic matter, so Adams set out to understand workplace inequity. Adams based his equity theory on Leon Festinger’s theory of cognitive dissonance: humans are uncomfortable when presented with conflicting beliefs and information, so we avoid such dissonance by changing one of the inconsistent elements.2
Adams first distinguished between inputs, a worker’s contributions, and outcomes.1 He emphasized that inputs are perceived by their contributor, and they may be perceived differently by an employer. Thus, there are two distinct characteristics of inputs:
- Recognition: Either the contributor or the other party of an exchange, or both, may recognize a certain attribute.1 As long as the contributor recognizes its existence, it has the potential to be an input. However, if only the other party recognizes its existence, it is not considered an input.
- Relevance: If the contributor recognizes the existence of an attribute, its potential to be an input is dependent on the contributor’s perception of its relevance to the exchange.1 If perceived to be relevant and the contributor expects a fair return for it, but the other party does not consider it to be relevant, problems of inequity occur.
On the other hand, outcomes were defined as a worker’s compensation, whether monetary or intangible.1 Examples of outcomes include pay, intrinsic rewards, seniority benefits and job status, and outcomes tend to be correlated (i.e. greater pay and higher job status). Similar to inputs, perceptions of outcomes are based on recognition and relevance. If both parties recognize the relevance of an attribute, then it has potential to be an acceptable outcome. The role of relevance in perception is important when determining what is equitable: a salary increase may be inadequate if the employee wanted and had greater use for a formalized status bump.
Adams then addressed the need for a rigorous definition of inequity, as measured in his theory.1 Influenced by Festinger, inequity was deemed to exist when someone’s perceived job inputs and/or outcomes were opposite to what they perceived another’s inputs and/or outcomes to be. Importantly, it is the perception of an individual’s and another person’s inputs and outcomes that matter, rather than actual inputs and outcomes. This distinction highlights how equity is rarely considered in isolation. Rather, employees will compare the ratio of their inputs and outcomes to the ratio of others’ inputs and outcomes. If an inequity is perceived to exist based on ratios, then the employee will adjust their inputs accordingly.
Inequity does not only occur when employees feel like they got the short end of the stick.1 Adams theorized that if an employee knows that they are relatively overpaid, they will recognize that inequity exists and feel tense, similar to how they would feel if they were underpaid. In accordance with Festinger’s theory of cognitive dissonance, employees who recognize inequity will be motivated to reduce it,2 with the strength of said motivation proportional to the amount of tension created.1
Adams extended his theory to explore how employees try to reduce the dissonance that comes with inequity.1 People may increase or decrease their inputs or outcomes, distort their perceptions of their inputs and outcomes, distort their perceptions of others’ inputs and outcomes, or leave their position when inequities cannot be addressed. Additionally, people may change their referent group, which is the employee’s comparison group. According to Adams, there are four possible referent groups:
- Self-inside: The employee’s experience within their present organization;
- Self-outside: The employee’s experience with other organizations;
- Others-inside: Other people within the employee’s present organization; and,
- Others-outside: Other people outside of the organization.1
Adams used both observational and experimental data to support his equity theory.1 Using such evidence, he explored how the guilt and hostility that result from inequity can decrease motivation and productivity within the workplace, subsequently impacting quality of work.