Professional Documents
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Is there a relationship between how hard an employee works and how fairly they have been treated? Some noted
economists believe that there is, so think before you berate your staff!
In business, the Equity Theory of employee motivation describes the relationship between how fairly
an employee perceives he is treated and how hard he is motivated to work. Peter Drucker, an author
who specialized in economics, first proposed the link between Equity Theory and employee
motivation.
The basic idea behind the Equity Theory is that workers, in an attempt to balance what they put in to
their jobs and what they get from them, will unconsciously assign values to each of his various
contributions.
In addition to their time, workers contribute their experience, their qualifications, and their capability in
addition to their personal strengths such as acumen and ambition. Money, of course, is the primary
motivating outcome for an employee, but it is not the only, and in some cases not even the most
important, factor. Power and status are also prime motivators, as are flexibility, perquisites and
variety.
According to the Equity Theory, the most highly motivated employee is the one who perceives his
rewards are equal to his contributions. If he feels that he is working and being rewarded at about the
same rate as his peers, then he will judge that he is being treated fairly.
This doesn’t mean that every manager should treat every employee identically, because every worker
does not measure his contributions in the same way. For example, flexible working hours might
motivate a working mother even more than a pay raise. Conversely, though an across-the-board
wage increase may delight most employees, the highest producers may become less motivated if
they perceive that they are not being rewarded for their ambition. Research on Equity Theory and
employee motivation has shown that, in general, over-rewarded employees will produce more and of
a higher quality than will under-rewarded, less motivated employees.
adams' equity theory
Inputs are typically: People need to feel Outputs are typically all
effort, loyalty, hard work, that there is a fair financial rewards - pay,
commitment, skill, ability, balance between salary, expenses, perks,
adaptability, flexibility, inputs and outputs. benefits, pension
tolerance, determination, Crucially fairness is arrangements, bonus and
heart and soul, measured by commission - plus intangibles
enthusiasm, trust in our comparing one's own - recognition, reputation,
boss and superiors, balance or ratio praise and thanks, interest,
support of colleagues and between inputs and responsibility, stimulus,
subordinates, personal outputs, with the ratio travel, training,
sacrifice, etc. enjoyed or endured by development, sense of
relevant ('referent') achievement and
others. advancement, promotion,
etc.
Theory X and Theory Y
In his 1960 book, The Human Side of Enterprise, Douglas McGregor proposed two
theories by which to view employee motivation. He avoided descriptive labels and simply
called the theories Theory X and Theory Y. Both of these theories begin with the
premise that management's role is to assemble the factors of production, including
people, for the economic benefit of the firm. Beyond this point, the two theories of
management diverge.
Theory X
Essentially, Theory X assumes that people work only for money and security.
Under Theory X, management approaches can range from a hard approach to a soft
approach.
The hard approach relies on coercion, implicit threats, close supervision, and tight
controls, essentially an environment of command and control. The soft appoach is to be
permissive and seek harmony with the hope that in return employees will cooperate
when asked to do so. However, neither of these extremes is optimal. The hard approach
results in hostility, purposely low-output, and hard-line union demands. The soft
approach results in ever-increasing requests for more rewards in exchange for ever-
decreasing work output.
Theory Y
The higher-level needs of esteem and self-actualization are continuing needs in that they
are never completely satisfied. As such, it is these higher-level needs through which
employees can best be motivated.
McGregor recognized that some people may not have reached the level of maturity
assumed by Theory Y and therefore may need tighter controls that can be relaxed as the
employee develops.
If Theory Y holds, the firm can do many things to harness the motivational energy of its
employees:
If properly
implemented, such
an environment
would result in a
high level of
motivation as
employees work to
satisfy their higher
level personal
needs through
their jobs.
THEORY Z
Theory Z is an approach to management based upon a combination of American and
Japanese management philosophies and characterized by, among other things, long-
term job security, consensual decision making, slow evaluation and promotion
procedures, and individual responsibility within a group context. Proponents of Theory Z
suggest that it leads to improvements in organizational performance. The following
sections highlight the development of Theory Z, Theory Z as an approach to
management including each of the characteristics noted above, and an evaluation of
Theory Z. Realizing the historical context in which Theory Z emerged is helpful in
understanding its underlying principles. The following section provides this context.
DEVELOPMENT OF THEORY Z
McGregor presented an alternative set of assumptions that he called Theory Y and were
more positive about human nature as it relates to employees. In McGregor's view,
managers who adopted Theory Y beliefs would exhibit different, more humanistic, and
ultimately more effective management styles. McGregor's work was read widely, and
Theory Y became a well-known prescription for improving management practices.
But in the 1970s and 1980s, many United States industries lost market share to
international competitors, particularly Japanese companies. Concerns about the
competitiveness of U. S. companies led some to examine Japanese management
practices for clues to the success enjoyed by many of their industries. This led to many
articles and books purporting to explain the success of Japanese companies. It was in
this atmosphere that Theory Z was introduced into the management lexicon.
Theory Z was first identified as a unique management approach by William Ouchi. Ouchi
contrasted American types of organizations (Type A) that were rooted in the United
States' tradition of individualism with Japanese organizations (Type J) that drew upon
the Japanese heritage of collectivism. He argued that an emerging management
philosophy, which came to be called Theory Z, would allow organizations to enjoy many
of the advantages of both systems. Ouchi presented his ideas fully in the 1981 book,
Theory Z: How American Companies Can Meet the Japanese Challenge. This book was
among the best-selling management books of the 1980s.
LONG-TERM EMPLOYMENT
INDIVIDUAL RESPONSIBILITY
The Type Z organization relies on informal methods of control, but does measure
performance through formal mechanisms. This is an attempt to combine elements of
both the Type A and Type J organizations.
Type A organizations have generally had quite specialized career paths, with employees
avoiding jumps from functional area to another. Conversely, the Type J organization has
generally had quite non-specialized career paths. The Type Z organization adopts a
middle-of-the-road posture, with career paths that are less specialized than the
traditional U.S. model but more specialized than the traditional Japanese model.
HOLISTIC CONCERN
The Type Z organization is characterized by concern for employees that goes beyond the
workplace. This philosophy is more consistent with the Japanese model than the U.S.
model.
EVALUATION OF THEORY Z
Research into whether Theory Z organizations outperform others has yielded mixed
results. Some studies suggest that Type Z organizations achieve benefits both in terms
of employee satisfaction, motivation, and commitment as well as in terms of financial
performance. Other studies conclude that Type Z organizations do not outperform other
organizations.
Difficulties in the Japanese economy in the 1990s led some researchers to suggest that
the widespread admiration of Japanese management practices in the 1970s and 1980s
might have been misplaced. As a result, Theory Z has also received considerable
criticism. It is unclear whether Theory Z will have a lasting impact on management
practices in the U. S. and around the world into the twenty-first century, but by
positioning target research at the organizational level rather then the individual level,
Ouchi will surely leave his mark on management practice for years to come.