The Power of Perks: Equity Theory and Job Satisfaction in Silicon Valley

Silicon Valley is known for its amazing workspace and perks. Due to Equity Theory and Two-factor Theory, employees should be content and stay longer. However, studies have found that there's a higher rate of job-hopping, which seems like a contradiction (Fallick et al, 2006). Participants were 135 engineers, ages 18 to 35 years old, who completed an online survey looking at job satisfaction, job expectations, perk usage, employee perception of perks, personal equity sensitivity, and comparison others. Recruitment was done through personal connections in the Bay Area and various social media sites that are targeted towards engineers. Results did not show that job satisfaction influenced job expectations while individual differences in equity didn’t influence perk usage, perceptions of job expectations. In conclusion, this research adds to the dearth of literature about Silicon Valley, and, more broadly, explored a link between Equity Theory and Two-Factor Theory that had not been previously examined. Search terms: Silicon Valley, Equity Theory, Job Satisfaction EQUITY THEORY AND SILICON VALLEY 3 Introduction Today, Silicon Valley and its unbelievable workspace have officially permeated the cultural zeitgeist: in the past two years, there has been two movies about the life of Apple founder Steve Jobs. In the movie The Internship (2013), Google’s massive Mountain View headquarters, the Googleplex, shares just as much screen time as Hollywood stars Owen Wilson and Vince Vaughn, while HBO has found success with its 2014 sitcom, Silicon Valley. Currently, there is an intense fascination about the workplace culture of the United States’ hub of technological prowess. Today, “Silicon Valley” is generally used as a metonym for the technology industry in the United States, just as “Wall Street” is used to refer to finance and “the Capitol,” politics. To properly understand Silicon Valley, it is imperative to define the region and its history. Silicon Valley is a region and cultural mindset of the Bay Area in California and is delineated as the 1,854 square miles that make up San Francisco County, Santa Clara County, San Mateo County, and parts of Alameda County and Santa Cruz County (Silicon Valley Indicators, 2015). Although traditionally San Francisco is not considered part of Silicon Valley, the recent growth of technology giants that call it home, such as Pinterest, Airbnb, Uber, Dropbox, make it suitable for this study. In this study, the term “Silicon Valley” will be used interchangeably with tech culture in the Northern California area. The prevalent myth that Silicon Valley experienced “instant industrialization,” becoming a powerhouse for technology seemingly overnight is false: there has been a robust electronics industry in the area since the beginning of the radio, television, and military electronics industries (Kenney, 2000, p. 16). However, the Silicon Valley we know today originates from the various silicon chip manufacturers and producers, and where it also gets its name. In 1947, EQUITY THEORY AND SILICON VALLEY 4 William Shockley and his peers introduced the first transistor to the world and eventually won the Nobel Prize. Nine years later, he founded Shockley Semiconductor Laboratories in Palo Alto and recruited talented individuals to help him produce Fairchild semiconductors. Later, his employees all dispersed and created the staples that Silicon Valley originated from, such as Intel and Hewlett-Packard (Kenney, 2000). Currently, the work hard, play hard mentality is highly prevalent and is openly encouraged by the companies themselves through the forms of various perks. This employeefirst approach supposedly bodes well for the health of the company in accordance with Social Identity Theory and Equity Theory. Companies utilize these two theories to create company loyalty and retain top workers, mostly through perks and benefits. Since Silicon Valley is renowned for its amazing working conditions and other aspects that usually cause employees to score higher on the Job Satisfaction Survey (Spector, 1997). However, studies have found that there's a higher rate of job-hopping for college-educated men in Silicon Valley compared to other technology industries located in other parts of the United States (Fallick et al, 2006). Thus, the question of interest would be even though it seems like Silicon Valley companies are doing everything correctly in regards to psychology theories, it remains unclear why they cannot retain their employees for as long as other non-Silicon Valley technology companies. Perhaps it is related to individuals’ personal sense of equity sensitivity and if they are actually taking advantage of the perks that are offered and using them, or if there a sense of selfpolicing or a social norm that prohibits workers from using a certain perk. There might be a relationship between worker satisfaction and long-term job expectations, or it could be influenced by some other variable. Is there a relationship between equity sensitivity and perk EQUITY THEORY AND SILICON VALLEY 5 usage? All these questions and their psychological bases will be examined in the following pages. To examine how companies are trying to appeal and retain their workers, it is important to start at the source. A quick browse through the websites of the tech companies casts them in thoughtful, magnanimous light. A review of three websites of well-known technology companies reveals certain perks and activities are common. For example, many emphasize their social activities, free food, and relaxed work environment. The primary concept is that they value each individual employee like family, and that their benefits and perks prove it. Palantir Technologies, a private data mining company located in Palo Alto, highlights its flexible work hours, free food, organized activities, and playful environment, urging their employees to choose their own adventure (Life at Palantir, 2015). It can’t get any clearer when Google itself signs off with a modest, “Hey, we’re family” on its benefits page (Benefits at Google, 2015). The use of the construct of family ties into Social Identity Theory, which has three components: social categorization, social identification, and social comparison (Tajfel & Turner, 1979). People naturally categorize themselves into groups, which then give us a sense of belonging and pride. In-groups could range from something as small as shared hobbies to something much more defining, like a shared ethnicity. This act of categorization is benign but leads to social identification, where people start identifying with an in-group more explicitly (Tajfel & Turner, 1979). The group norms that other members bring begin to be perceived as compatible with one’s personal beliefs, and one begins to emulate them. Lastly, social comparison occurs, where one’s own sense of self becomes closely intertwined with one’s perceptions of personal identity and of group membership. One’s sense of self-esteem increases or decreases based on how one’s in-group is performing in society by comparing it to the out-group (Tajfel & Turner, EQUITY THEORY AND SILICON VALLEY 6 1979). Interestingly, the mere perception of two distinct groups, as in social categorization, is enough to elicit intergroup discrimination favoring the in-group. In other words, the mere awareness of the existence of an out-group is enough to aggravate the in-group to respond in a competitive or discriminatory fashion. (Billig & Tajfel, 1973). Out-groups, the groups we do not belong to, are discriminated against to increase feelings of superiority towards our own ingroup. (Tajfel & Turner, 1979). By capitalizing on this sense of social identity, companies—and to a broader extent, all organizations—want to build a sense of community to increase in-group loyalty and retain valuable workers, and perhaps provoke intergroup competition. Another theory relevant to the goals of this study is equity theory, which asserts that workers are motivated by a desire to be treated fairly, which is measured by the ratio of their inputs and outcomes (Adams, 1965). Workers possess certain inputs that they bring to the job, like skills, time, and effort. In return, they expect to receive certain outcomes from the job, such as a salary, benefits, and other forms of compensation. Workers are satisfied if they think their inputs are equal to their outcomes. The way this satisfaction is determined is by comparing themselves to “comparison others,” like co-workers or peers. If workers draw the conclusion that conditions are inequitable, their motivation will change. Empirical evidence has been found in many studies including Greenberg, 1988; Greenberg & Ornstein, 1983; Valenzi and Andrews, 1971. It is important to note that this is not a measure of true equity, but what workers personally perceive to be equitable (Huseman, Hatfield, & Miles, 1987). There are two types of perceived inequity: underpayment inequity and overpayment inequity. Underpayment inequity states that if the worker determines that their inputs are greater than their outcomes as compared to their comparison others, there will be four outcomes: EQUITY THEORY AND SILICON VALLEY 7 i. Increasing outcomes, like asking for a raise ii. Decreasing inputs, like putting in less hours of work iii. Changing the comparison other iv. Leaving the situation, like switching companies. Overpayment inequity, which states that if the worker feels that their outcomes are greater than their inputs as compared to their comparison others, manifests in four different results: i. Increasing inputs, such as working extra hours to feel like they have earned the extra outcomes ii. Decreasing outcomes, such as asking for a cut in pay; this is the least likely scenario iii. Changing the comparison other to someone in a higher position iv. Distorting the situation through rationalization, like tel