Pay equity is based on the principle that the payment an employee receives from the employer should be proportional to his or her contributions to the organization. Otherwise, inequity results. Historically, pay equity has been approached by two somewhat separate perspectives: (1) the individual or psychological perspective, which focuses on how individuals form pay equity perceptions and the consequences associated with feeling inequity; and (2) the social or economic movement perspective, which concentrates on documenting objectively existing pay inequity at the societal level and on advocating its eventual elimination.
The Individual-Psychological Perspective
According to J. S. Adam’s equity theory, when forming pay equity perceptions, an individual evaluates the payment (broadly defined, including salary, benefits, promotion, social status, etc.) that he or she receives relative to the inputs (e.g., education, skills, experience, and effort) that he or she brings to a job and then compares his or her ratio of payment to inputs with other employees in a similar job. Two types of pay inequity result from the above social comparison: (1) overpayment, when the individual perceives that his or her ratio is larger than others; and (2) underpayment, when the individual perceives that his or her ratio is smaller than others.
Perceptions of overpayment lead to guilt. However, research suggests that this guilty feeling does not last long, and overpaid individuals quickly become accustomed to it, implying a fundamental self-serving bias. On the other hand, perceptions of underpayment lead to resentment, anger, and personal distress. These negative affects prompt underpaid individuals to restore equity. Due to the subjective nature of equity theory, it is difficult to predict specific strategies that underpaid individuals will adopt. However, a bulk of research shows that many of the strategies actually taken are detrimental to the organization: for instance, decreased motivation and productivity and product quality, lowered organizational commitment and pay-job satisfaction, increased counterproductive behaviors (theft, sabotage, and absenteeism), elevated intention to quit, and actual voluntary turnover.
Research suggests that some individual difference variables (e.g., positive affectivity and negative affectivity) as well as situational variables (e.g., participation in pay decisions) influence the formation of pay equity perceptions. There is also some evidence that individuals have varying degrees of equity sensitivity that moderates the severity of their reactions to inequity perceptions. In addition, although individuals typically choose employees in a similar job as their comparison referent, D. M. Cowherd shows that many low-level employees also compare their rewards to those received by upper management.
The Social-Economic Movement Perspective
Beyond the pay equity perceptions is the well-established fact that in the United States there has been a substantial wage gap across gender with men being paid more than women, aggregated on the national level. The past several decades saw one of the major social and economic movements attempting to eliminate such a gap. The ideological foundation of this movement is the principle of comparable worth, meaning jobs with similar worth to an organization should be paid equally, regardless of gender. Accompanying this movement were various legislative efforts to outlaw wage discrimination (e.g., Equal Pay Act of 1963, Civil Right Act of 1964, Title VII) and the establishment of the Equal Employment Opportunity Commission to enforce these acts. The size of the observed gender wage gap, or the ratio of women’s wages to men’s wages, has since shrunk slowly from 63% in 1979 to 77% in 2002.
Two schools of thought have tried to explain the persistence of the gender wage gap. The human capital explanation argues that the wage gap can be at least partially attributed to the differential amount of human capital men and women bring to the work place. For instance, as compared to women, men tend to have more job qualifications in terms of education, skill, and experience and are more likely to have longer, more continuous careers. The discrimination explanation blames societal factors that place women in relatively disadvantageous positions in the workplace. For instance, gender segregation has been dominant throughout the American labor force, with women less likely than men to possess more prestigious, higher-paid jobs; to enter industries with strong trade unions; and to have few senior female managers in the organization hierarchy to serve as role models.
- Cowherd, D. M., & Levine, D. I. (1992). Product quality and pay equity between lower level employees and top management: An investigation of distributive justice theory. Administrative Science Quarterly, 37, 302-320.
- Dale, C. V., & Levine, L. (2004). Pay equity legislation in the 108th Congress. Congressional Research Service Reports. Retrieved from http://digital.library.unt.edu/explore/collections/CRSR/
- Pinder, C. C. (1998). Equity, justice, and fairness in the workplace. In Work motivation in organizational behavior (pp. 286-236). Upper Saddle River, NJ: Prentice Hall.
- Summers, T. P, & Hendrix, W. H. (1991). Modeling the role of pay equity perceptions: A field study. Journal of Occupational Psychology, 64, 145-157.