Question

Discuss how can an organization address the four forms of equity as suggested in Equity Theory by using illustrative examples?

Answer 1

Answer: There are four forms of equity: External, Internal, Individual, and Procedural equity. Let us take the example of Manager's compensation in the organization to understand how does the organizations creates a balance between the four types of equity:

External Equity: How a particular Manager's role is paid in the organization with respect to the same role in other organizations in the Industry.

Internal Equity: How a particular Manager's role is paid in the organization with respect to the same hierarchy in other departments of the same organization.

Individual Equity: This is the fairness of the pay with respect to the colleagues who is working in the same department and as per the individual educational background quality, individual performance, etc.

Procedural Equity: This refers to the equity coming from the uniformity and fairness of the procedure to determine the manager's compensation.

Therefore, with similar other benefits, the organizations try to build the equity in all the four types of equity.