Directorate of distance education master of business administration

Adam’s Equity Theory
 
Stacy Adam’s (1963) advocated Equity theory states that employees 
should be perceived as fair in comparison with various factors. Adams 
explained inequity as an injustice perceived by a person when he 
compares the ratio of his outcomes in the form of rewards to his inputs 

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in the form of efforts, with the ratio of the inputs and outputs of another 
comparable person and finds that it is to his disadvantage and that they 
are being under-rewarded or over-rewarded.  For example, when people 
of same educational qualifications, age-group, experience-levels and 
levels of intelligence quotient are placed, the first to be employed might 
be placed in the regular cadre, while the subsequent appointed persons 
could be placed in a contractual mode of appointment. Such practices 
can bring forth feelings of inequity and de-motivation among the latter. 
The referent with which employees choose to compare themselves 
is an important variable in equity theory. The three referent categories 
have been classified as “other,” “system,” and “self.” The “other” category 
includes other individuals with similar jobs in the same organization 
and also includes friends, neighbors, or professional associates. On the 
basis of information they receive through word of mouth, newspapers 
and magazine articles on issues such as executive salaries or a recent 
union contract, employees compare their pay with that of others. 
The “system” category considers organizational pay policies 
and procedures and the administration of this system. It considers 
organization-wide pay policies, both implied and explicit.  Precedents by 
the organization on matters of allocation of pay are major determinants 
in this category. The “self ” category refers to inputs-outcomes ratios that 
are unique to the individual. It might reflect past personal experiences 
or other occupations presently held. The choice of a particular set of 
referents is related to the information available about referents as well as 
to their perceived relevance. 
On the basis of the nuances of equity theory, when employees 
perceive any significant inequity in their working conditions or pay, they 
might follow any one or more of the following options:
a. 
Distort either their own or others’ inputs or outcomes;
b. 
Behave in some way to induce others to change their inputs 
or outputs;
c. 
Behave in some way to change their own inputs or outcomes
d. 
Choose a different comparison referent and /or 
e. 
Give up and quit their jobs.

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