Equity, or perceived fairness, of compensation from the perspective of Essay

Equity, or perceived fairness, of compensation from the perspective of the employee - Essay Example Equity or fairness, from the employee’s perspective is best explained with the equity theory. Equity theory suggest that in the quest for fairness and justice, employees quantify their inputs and outputs and judge fairness or otherwise, by comparing these to that of a referent other (Werner and Mero, 1999 p.1291). According to Werner and Mero (1999), employee inputs include quality of job performance, length of service, education, experience, amount of responsibility and pressure, productivity on the job, effort expended on the job and organizational citizenship behavior. While outputs subsumes pay and benefits, promotions, status and intrinsic rewards (p.1291). Compensation can be defined as including pay and benefits, with particular emphasis on pay i.e. wages/salary, bonuses, stock options, incentives, etc. Fairness, on the other hand, is an objective evaluation of competencies, performance and compensation (CAPS, 2003). Fairness or the perception of fairness plays a crucial role in understanding employee behaviors/morale in any organizational settings (Charness and Haruvy, 2000 p.655); employees that perceive that they are being under or over compensated tend to experience feelings of anger or guilt and therefore act in a way to correct the situation or achieve fairness either by altering inputs or outputs, using a different referent for comparison or creating psychological justifications (Werner and Mero, 1999 p.1292). In this regard, employee perception of fairness is bound to have a profound effect on productivity, job performance, and organizational citizenship behavior. For example, underpayment and other perceived inequities have been related to lower satisfaction, lower productivity, illegal behavior, lower production quality, and increased turnover. Therefore, as concluded by Bass (1995), understanding factors that shape employee perception of fairness will greatly help in building employee trust and improve productivity (Bass 1995