Similar to human resources management, organizational behavior management (OBM) is an important aspect of management. OBM applies psychological principles of organizational behavior and the experimental analysis of behavior to organizations to improve individual and group performance. The areas of application may include: systems analysis, management, and training and performance improvement. Equity theory plays a role in analyzing organizational behavior.
Definition of Equity Theory
Equity theory suggests that individuals who perceive themselves as either under-rewarded or over-rewarded will experience distress, and that this distress leads to efforts to restore equity within the relationship. The theory focuses on determining whether the distribution of resources is fair to both relational partners. Equity is measured by comparing the ratios of contributions and benefits of each person within the relationship.
Individuals consider themselves treated fairly when they perceive the ratio of their inputs to outcomes to be equivalent to those around them. In practice, all else being equal, this means an employee would find it acceptable for a more senior colleague to receive higher compensation, since the value of the senior employee's experience (and input) is higher. Employee job satisfaction often relies on comparisons with their co-workers.
If an employee observes another employee receive more recognition and rewards for contributions—even when both have performed the same amount and quality of work—the employee who receives fewer rewards will experience dissatisfaction. That employee may feel under-appreciated as a consequence. Equity theory proposes that rewards (outcomes) should be directly related to the quality and quantity of employees' contributions (inputs). If both employees in this situation receive the same reward, the workforce is more likely to recognize that the organization is fair, observant, and appreciative.
Managers are tasked with assessing equity: identifying both the quantity and quality of a given individual's inputs and comparing that to his or her overall compensation. Managers are also responsible for discussing this situation with their subordinates, ensuring that they feel their contributions are being matched by their salary and other forms of compensation. While this concern also falls within the human resources frame, the manager is more directly involved with employee's actual contributions (and thus more accurate in assessing value).
In any position, employees want to feel that their contributions and work performance are being fairly compensated. If this is not the case, management must intervene and either renegotiate or replace the dissatisfied individual. Workers have a right to be compensated in a manner that reflects their value; if they are not, then management must restore this equity or risk losing valuable talent.
Organizations can ensure collective rewards are maximized through the use of accepted systems for equitably rewarding members. Systems of equity will evolve within groups, and members must encourage other members to accept and adhere to these systems. The only way groups can ensure equitable practices are observed is by making it more profitable to behave equitably than inequitably. Thus, an organization will generally reward members who treat others equitably and generally punish (increase the cost for) members who treat others inequitably.