Play for pay: effects of inequity in a pay-for-performance context - includes appendix - Process and Outcome: Perspectives on the Distribution of Rewards in Organizations

Administrative Science Quarterly,  June, 1992  by Joseph W. Harder

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This research explores the effects of an objectively determined, continous measure of inequity on composite measures of individual performance in a pay-for-performance context, professional baseball and basketball. It was hypothesized that pay-for-performance contingencies would lessen the effects of individual underreward on individual performance. In addition, it was hyprothesized that individual underreward would lead to less cooperative and more selfish behavior. Regression models of perfomance were run, controlling for prior career performance. The effects of the continuous measure of inequity on performance were greater for overrewarded individuals than for underrewarded individuals. Furthermore, underrewarded individuals behaved less cooperatively and more selfishly, while overrewarded individuals behaved more cooperatively.(*)_

The distribution of rewards in organizations has important behavioral consequences, and one of the most important rewards allocated in work organizations is pay. The relationship between pay and performance has long been a focus of managerial thought. Management scholars have long advocated linking pay to performance as a means of motivating higher performance. Kanter (1987) has suggested that compensation policies in work organizations in the United States are changing as organizations move away from senriority or status-based pay systems to systems linking rewards more closely with performance. In light of this development, research in needed to ascertain what the effects of these systems are on individual performance. This paper explores the relationship between individual pay and individual performance in professional sports, a context in which individual performance is a clear component in the determination of individual reward (e.g., Pascal and Rapping, 1972; Scully, 1974a, 1974b, 1989; Hill and Spellman, 1983, 1984; Kahn and Sherer, 1988; Wallace, 1988).

Many theories make predictions about individual motivation to perform in organizations. This research focuses on a synthesis of two theories, equity thoery and expectancy theory. Equity thoery (Adams, 1965; Walster, Walster, and Berscheid, 1978) posits that individuals evaluate the ratio of their inputs to outcomes for a given task in relation to a comparative referent. Inequity exists if the ratios are not equal, creating a tension individuals are motivated to decrease. To restore equity, outcomes or inputs can be altered, objectively or psychologically; comparative referents can be changed; or the individual can withdraw from the situation. As Greenberg (1989) noted, however, equity research provides little quidance as to when psychological adjustments rather than actual adjustments will occur. Thus, this research focuses specifically on objective changes in one type of input, performance. Equity theory suggests that overrewarded individuals might be motivated to increase their performance and underrewarded individuals to decrease their performance in an effort to restore equity.

Predictions about performance reactions to inequity have been tested primarily in the laboratory. Reviews of equity studies conclude that perceptions of equity can significantly alter individuals' performances (Goodman and Friedman, 1971; Walster, Walster, and Berscheid, 1978; Greenberg, 1982, 1987); however, the empirical evidence for conditions of both overreward and underreward is mixed (Cook and Hegtvedt, 1983). Further, these studies have been largely "one-shot affairs" (Homans, 1982: xv). Specificially, it is unlikely that subjects developed strong expectancies about future rewards based on these experiments.

Extant equity theory work in organizational settings, moreover, has not emphasized performance effects as much as laboratory work has. As Hauenstein and lord (1989: 147-148) noted,

Equity-theory research occurring in organizational settings has focused primarily on the impact of organizational activities on workers' perceptions of both equitable treatment and corresponding levels of job satisfaction, absenteeism and turnover.... Clearly, what is needed is more research into the relationship between perceptions of inequity and perfomance in organizational settings.

Most previous equity research has also operationalized inequity as a dischotomous variable, through experimental manipulations intended to create strong feelings of inequity (Hauenstein and Lord, 1989). Research on reactions to inequity over a range of values is needed (Vecchio, 1982).

Expectancy theory (Vroom, 1964; Porter and Lawler, 1968; Mitchell and Biglan, 1971; Nadler and Lawler, 1977) posits that individuals will be motivated to perform based on two expectantcies. The first expectancy is the sujective probability that a given performance will lead to certain desired outcomes. The second expectancy is the subjective probability that effort exerted will lead to the desired performance. These two expectancies interact with each other and with the valence (attractiveness)) of outcomes to determine the overall level of motivation.