Which of the following observations is true about the equity theory?
A. It suggests that managers compare the performance of employees with their potential to improve.
B. It suggests that employees’ performance should be evaluated based on their developmental needs.
C. It suggests that internal equity pay comparisons focus on what employees in other organizations are paid for doing the same general job.
D. It suggests that when a person’s outcome-input ratio is greater than the comparison other’s ratio, underreward inequity is perceived.
E. It suggests that people evaluate the fairness of their situations by comparing them with those of other people.
The correct answer and explanation is :
The correct answer is E. It suggests that people evaluate the fairness of their situations by comparing them with those of other people.
Explanation:
Equity theory, developed by John Stacey Adams in 1963, is a psychological theory that examines how individuals perceive fairness in the workplace and how they are motivated by social comparisons. The theory focuses on the concept of fairness, especially in terms of how employees view the balance between their inputs (e.g., work effort, time, skills) and their outcomes (e.g., pay, recognition, benefits), compared to others in similar situations.
According to equity theory, people compare their own outcome-to-input ratios with those of others in the workplace. If individuals perceive that they are receiving fewer rewards for their contributions (inputs) than others, they might feel a sense of inequity, which can lead to feelings of dissatisfaction, demotivation, or even resentment. Conversely, if they feel they are receiving more rewards than others for the same or similar contributions, they might feel guilty or uneasy.
This comparison between their ratio and that of others’ ratios is at the core of equity theory. If an employee perceives that their outcome-to-input ratio is less favorable compared to a peer, they may perceive under-reward inequity and take action to restore equity, such as reducing their effort, seeking a raise, or leaving the organization.
In contrast:
- A, B, and C do not align with equity theory. While performance evaluation and developmental needs are important in many management theories, they are not central to the equity theory.
- D incorrectly describes the relationship between outcome-input ratios in equity theory; it refers to over-reward inequity, where one person feels that their rewards exceed their input contributions.
Thus, E correctly captures the essence of equity theory, which revolves around social comparisons to assess fairness and balance in work-related rewards.