Applications

Equity Theory has become widely used across disciplines and has been tested in different geographical contexts. The major body of knowledge has been generated in the domain of organisational psychology. For example, the principles of Equity Theory were used to examine the effect of fairness perception on employees’ negative and positive behaviour (Janssen, 2001; Moorman, 1991; Greenberg, 1990). The framework was applied to explain the relationship between the employees’ perception of fair procedures and rewards distribution on organisational citizenship behaviour. It was found that positive behaviour of employees can be secured by subjecting employees to fair procedures irrespective of the equitable distribution of rewards compared to other employees in the organisation (Moorman, 1991). Also, Equity Theory was used to explore the moderation effect of fairness perception on the relationship between job demands, job performance and job satisfaction. It was confirmed that in the condition of fair effort-reward allocation, people tend to perform better and feel more satisfied (Janssen, 2001). When employees are paid for performance, though, the evaluation of reward can be detrimental to employees’ positive performance. Performance-related pay schemes pose a threat to organisations, as there is no clear relationship between earnings and job grade, which makes the workers’ perception of rewards distribution highly subjective (Rubery, 1995; Ederer & Manso, 2013). In addition, the theory was applied to explain employees’ negative behaviour, such as theft, as the response to redistributing rewards (i.e. compensation for pay cuts) and the mechanism used to lessen the perception of inequity. The results supported the predictions of Equity Theory in terms of likely responses to underpayment and the coping role of negative behaviour in situations of perceived inequity (Greenberg, 1990).

Equity Theory has also underpinned research in economic psychology. There was a study proposing a fair wage-effort hypothesis and discussing implications for the labour market. It was suggested that when the actual wage falls short of employees’ fair wage, employees tend to engage in withdrawal behaviour. The hypothesis was consistent with observed wage differentials and unemployment patterns, which confirmed the power of the theory in explaining economic indexes (Akerlof & Yellen, 1990). In another example, a study used the theory in order to investigate the firm-level consequences entailed by CEO underpayment in an emerging economy. It was found that underpayment reduced firm value in poorly-governed firms, while overpayment had no effect on firm value (Gyapong, Khaghaany & Ahmed, 2020). Also, the principles of Equity Theory were applied to predict socio-economic events (Kim, Evans & Moser, 2005; Ocampo & Vallejo, 2012). For example, scholars found a correlation between perceived inequity in a tax payment system (i.e. high tax rates) and taxpayers’ decisions to report a lower amount of income (Kim, Evans & Moser, 2005). In addition, the insight into the economic dynamics of developing countries demonstrated that despite the increase in public-sector social spending, the unequal distribution of socio-economic benefits among the society significantly impedes countries’ economic development (Ocampo & Vallejo, 2012).

The application of the theory was also found in research on intimate relations (Canary & Stafford, 1992; Sechrist et al., 2014). The balanced exchange of support between family members was confirmed to determine the quality of relations (Sechrist et al., 2014). Equity Theory was adopted to investigate the role of perceived relationship power in dating relations. The principles of equity theory were partially confirmed. Particularly, in line with the theory, the equal distribution of power correlated with a stronger feeling of happiness. However, in contrast to the theory, respondents with more power in relations than their partner (positive inequity) generally were more satisfied with the relationship and had a greater trust in their current partner (Hall & Knox, 2019). Similar findings derived from another study testing the effect of positive and negative inequity in relations. It was concluded that under-benefiting inequity led to distress and dissatisfaction, whereas such an outcome was not observed in cases of equity or over-benefiting inequity (Sprecher, 2018). Researchers also explored responses to inequity in relations, which take the form of the denial of responsibility for causing harm, victim-blaming and self-affirmation (Scott & Straus, 2007; Burn & Brown, 2006; Iqbal & Bilali, 2018). The responses to aggressive behaviour were different across respondents, calling for more in-depth insights into the gender and psychological/cognitive differences among people underpinning equity restoration strategies (Scott & Straus, 2007).

Equity Theory has also been used when it came to studying users’ interaction with information systems. For example, the equitable needs fulfilment suggested by the theory, successfully predicted information systems implementation (Au, Ngai & Cheng, 2008). The perception of online justice indirectly affects value co-creation behaviour, mediated by the sense of a virtual community (Chou, Lin & Huang, 2016). Price fairness increases the perceived quality of a product/service and deal value, motivating consumer behaviour (Darke & Chung, 2005; Darke & Dahl, 2003). Also, scholars applied Equity Theory to explaining the responses to inequity in relations mediated by technology (Harrington, 1996; Oliver, Shor & Tidd, 2004). Specifically, there is evidence that procedural and distributive justice in web purchasing induces a positive emotional state and leads to future purchase intention (Oliver, Shor & Tidd, 2004). Another body of research explored psychological responses to the unethical use of Information systems, manifested as the denial of responsibility for the misuse of technology (Harrington, 1996) or the consequences of the unethical use of technology (Cooper & Blumenfeld, 2012; Allison & Bussey, 2017).

Equity Theory has been tested in different geographical contexts, producing inconsistent results. For example, a comparison of the reactions of automotive dealers to positive inequity in the Netherlands and the US demonstrated that Dutch dealers perceived both negative and positive inequity unfavourably, while US dealers negatively reacted only to negative inequity (Scheer, Kumar & Steenkamp, 2003). Another piece of research demonstrated that the importance of fairness perception differed depending on culture (Lund, Scheer & Kozlenkova, 2013). The research shed light on the role of individualist and collectivist cultures in customers’ reactions to cross-cultural price comparisons (Bolton, Keh & Alba, 2010). However, the countries with a collectivist culture can also vary by the degree of distributive fairness perception, as suggested by a study exploring comparison strategies and the evaluation of rewards/inputs by employees in China, Japan and South Korea (Kim, Edwards & Shapiro, 2015). Japanese workers perceive overpayment to be unfair, in contrast to Chinese and South Korean employees, which can be explained by the stronger materialism ideology embedded in the social system of the latter two countries (Kim, Edwards & Shapiro, 2015). Mixed findings of fairness perception make it possible to conclude that it is not a universal concept, as it is largely moderated by cultural and ideological differences (Lund, Scheer & Kozlenkova, 2013; Bolton, Keh & Alba, 2010; Kim, Edwards & Shapiro, 2015).

Limitations

Equity Theory has been criticised for oversimplifying the normative foundation of individuals’ behaviour in the social exchange context. It has been argued that social relations cannot be reduced to a simple evaluation of inputs and outputs, due to the difference in the nature of relations, the resources being exchanged, the context and personality factors (Romer, 1977; Romer, 1979; Huseman, Hatfield & Miles, 1987; Cropanzano & Folger, 1989; Leventhal, 1980).

The major critique arose due to Equity Theory not being able to explain all instances of social relations. Equity theorists have been criticised for claiming the applicability of the theory to a broader domain, without, though, providing justification for such assumptions. Specifically, it has been argued that Equity Theory mostly refers to situations with a more economic nature and a context denoting competitive relations (Romer, 1977). Such a conclusion comes from the first assumption of the theory, which postulates that people in social exchange relations strive to maximise personal benefits, disregarding the cooperative relations people may engage in (Walster, Berscheid & Walster, 1973; Adams, 1963). To provide insight into the role of social factors in cost-benefit evaluation, a recent study was conducted, which found a strong positive impact of social group identity on equity evaluation (Davlembayeva, Papagiannidis & Alamanos, 2021). In addition, it was suggested that the application of Equity Theory is bounded to limited resource situations, whereby the rewards are subjected to the division between members of relations. Such situations do not take into consideration psychological unlimited rewards, which cannot be measured and divided (Romer, 1979).

The second limitation of the theory is that it does not take into account personal and cultural differences, which may affect the perception of equity (Walster, Berscheid & Walster, 1976). It was found that the behavioural approach to restoring inequity (Feldman, 1968) and equity perception (Weick, Bougon & Maruyama, 1976) varies across cultures, and the personal profit-maximization norm may not hold true universally for all people (Huseman, Hatfield & Miles, 1987). To address the limitation in prior research, Huseman et al. developed an equity sensitivity construct, which explains the difference in the perception of equity depending on the personal norm (Huseman, Hatfield & Miles, 1987). By measuring individuals’ equity sensitivity, it is possible to differentiate three types of people: equity benevolents, equity sensitive people and entitleds (Huseman, Hatfield & Miles, 1987; King & Miles, 1994). Equity benevolents tend to accept a negative distribution of rewards in relation to themselves. For them, the likelihood of getting a satisfactory outcome of relations is high, as the input of resources that they invest in exchange relations can exceed the output (Huseman, Hatfield & Miles, 1987). In contrast to benevolents, entitleds are intolerant of unfair rewards allocation and prefer to receive more than they contribute to relations (King & Miles, 1994). For equity sensitive people, the evaluation of fairness depends on the proportional ratio of output against the inputs contributed to relations. The equity sensitivity variable has been widely applied in research to explain the deviation of the perception of rewards and inputs in relations, based on individuals’ psychometric characteristics (Bourdage et al., 2018; Davlembayeva, Papagiannidis & Alamanos, 2021). Another approach to exploring individuals’ differences in equity/inequity perception was provided by Norman Anderson (1979), who developed a model of cognitive algebra to explain how people integrate information to form their judgement. The model can be a useful tool in analysing individuals’ cognitive differences underpinning equity evaluation (Farkas & Anderson, 1979).

Another limitation concerns the principles of the theory related to responses to inequity. It has been argued that the response to under-reward may be different to what is predicted by the theory, if the person chose to be under-rewarded (e.g. turning down a lucrative job in a pursuit of another career with a lower salary). In such situations, people may be more intrinsically motivated to improve the performance of the task, rather than decrease the input (Cropanzano & Folger, 1989). Employees can withhold from responding to inequity to maintain relationships or obtain gains from other aspects of relationships.

Finally, Equity Theory has been criticised for its unidimensional measurement, whereby rewards implied different resources, disregarding the processes that people may evaluate. As a response to this limitation, further research categorised fairness into several dimensions, such as the most widely used procedural and distributive justice (Leventhal, 1980). Perceived distributive justice refers to the perception that the amount of reward for the input in exchange is fair. Perceived procedural justice refers to the degree to which an individual perceives the means of rewards distribution to be fair (Folger & Konovsky, 1989). Researchers have provided evidence confirming that both procedural and distributive justice lead people to believe that the outcome of relations is favourable for them (Rubenstein, Allen & Bosco, 2019; Chan & Lai, 2017). These beliefs trigger positive emotions and behaviour (Ming Chiu & Walker, 2007; Chan & Lai, 2017), while the perception of injustice contributes to emotional exhaustion (Piccoli & De Witte, 2015).