The Equity-Equality Conflict—Dilemmas in the Management of Reward Systems

Steen Scheuer

doi:10.5539/jms.v3n3p158

Abstract

This article investigatesthe factors that determine workplace actors’ appeal to social norms of fairness in somesituations and what ‘fairness’ is perceived as consisting of. When is a pay level considered as relativity fair, andwhen is it not? When are contingent pay systems (i.e. pay-for-performance systems) perceived as fair and whenare they not? When can differences in contribution (equity) overrule the social norm of equality? Whichcontingent reward structure should be applied for teamwork members, if any? Which structure to motivateemployees to a continuous search for smarter working procedures and solutions? These are central concerns ofmotivation theory, where rational choice decisions are counterbalanced by endowment effectsor other fairnessconcerns. Management is placed in a dilemma between what is, e.g., an economically rational structure ofincentives, on the one hand, and what is considered as equitable by employees, on the other. Since equality inreward counts for more among employees, while equity in contribution counts more for employers, this is aninherent dilemma, constantly having to be negotiated and solved, but never reaching any ‘final solution’ in anycompany. On the basis of this dilemma, implications for management are spelt out, and recommendations for theutilization of and limitations for pay variance among peers are given.

Highlights

When is a pay level considered as relativity fair, and when is it not? When are contingent pay systems perceived as fair and when are they not? When can differences in contribution overrule the social norm of equality? Which contingent reward structure should be applied for teamwork members, if any? Which structure to motivate employees to a continuous search for smarter working procedures and solutions? These are central concerns of motivation theory, where rational choice decisions are counterbalanced by endowment effectsor other fairness concerns
Management is placed in a dilemma between what is, e.g., an economically rational structure of incentives, on the one hand, and what is considered as equitable by employees, on the other
In much of the literature, the consideration of norms is related to issues of the pay/work-effort relationship, while less has been done considering other important motivational aspects of the employment relationship, especially various issues of intrinsic motivation

Summary

Motivation and Fairness

The general theme of this article is to investigate into the causal relationship between willingness to contribute in the workplace and the effect of employees’ social norms. Effort is in focus here, but contribution more generally, encompassing besides effort commitment, persistence, willingness to change, to submit novel ideas etc These aspects are highly sensitive to fairness issues, issues that impinge on the question of variance of social norms in employment situations and among different kinds of employees, including institutional factors that support or minimize the effectiveness of particular normative statement in the workplace condition. Since the employment relationship may be seen as an iterated Prisoner’s Dilemma between the employer and the employee (Axelrod 1984) or as a continuous renegotiation of the effort bargain (Marsden 2004b), for management it is important to understand the nature and substance of the particular social norms present and to understand which factors may facilitate or hinder changing these norms. Lack of emphasis on or deficiency in ability to convince employees on this point, or employee representatives’ conscious framing of a conflict in precisely such terms, may generate a sense of lack of fairness among employees and provoke workplace conflicts (Scheuer 2006a)

Endowment Effects

Motivation and Incentives

Propositions for HRM

Conclusion