Effects of Pay and Productivity Comparisons in the Workplace on Employee Attitudes: An Experimental Investigation

This experimental study tested the tenets of equity theory (Adams, 1965). Whereas prior research has focused mainly on outcome equity, we investigated the effects of both input- and outcome-based inequity on several work attitudes. A 2x2x2 factorial design was employed in which two under-reward (underpay/equal productivity; equal pay/above average productivity) and two over-reward (overpay/equal productivity; equal pay/below average productivity) conditions were created. Subjects indicated their attitudes towards these scenarios in which they compared themselves to either an internal or external referent other. First, as predicted, we found that outcome-based (pay) inequity had a greater impact on most work attitudes than input-based (productivity) inequity. Second, as expected, we found that internal pay comparisons had a greater affect on most work attitudes than external comparisons. Finally, findings for productivity comparisons provided minimal support for the expectation that internal inequity would affect attitudes to a greater degree than external inequity. Implications for the management of human capital were discussed. Equity theory (Adams, 1965) has been a major theory of human motivation since its inception (Ambrose & Kulik, 1999). The basic tenet of equity theory is that individuals compare their own inputs and outcomes in a given situation to those of referent others in forming perceptions of fairness (Adams, 1965). Equity theory is particularly useful in understanding work attitudes and behavior since employment settings contain numerous types of individual outcomes (e.g., pay, advancement, benefits, status, recognition and praise) as well as many forms of inputs (e.g., work effort, productivity, skills, experience, education). According to equity theory, perceived inequity may result in several ways. One scenario is where the inputs of two employees are essentially equivalent but their outcomes differ. For example, two individuals may work in very similar jobs and have similar backgrounds (e.g., education, experience) but one may receive a larger salary than the other. Another form of inequity can result when the inputs of two employees differ but their outcomes are equivalent. For example, one employee may be more productive than another but both receive the same salary. Both forms of perceived inequity may potentially impact an employee's attitudes and behavior (e.g., Sauley & Bedeian, 2000). The majority of studies of workplace equity have focused on differences in outcomes (e.g., pay), with relatively few including both input and outcome comparisons (e.g., King, Miles & Day, 1 993). In most work settings an employee has relatively little control over their work outcomes (e.g., pay raises, promotions) which are typically allocated by superiors. In contrast, employees have greater control over their inputs such as work effort, quality, productivity and organizational citizenship behavior. Therefore, if equity perceptions are more influenced by outcome than by input comparisons, managers and supervisors have significant power to influence employee attitudes and behaviors. Thus, the main purpose of this study is to examine the relative impact of differences in inputs (productivity) and outcomes (pay) in determining employee work attitudes. Most prior research on equity theory in work settings has also been limited to internal equity comparisons (e.g., Huseman, Hatfield & Miles, 1985; Miles, King & Day, 1993). Internal equity is a comparison an employee makes with a referent other who works in the same or a very similar type of job within the same organization (i.e., co-worker). In contrast, external equity refers to a comparison with a referent other that performs the same type of job in another organization. Research suggests that employees use both internal and external referents in making judgments about their pay satisfaction and fairness (e.g., Blau, 1994; Ronen, 1986; Summers & DeNisi, 1990; Terpstra, 2003). …