Final answer:
Equity theory suggests that managers should ensure fair distribution of rewards to prevent negative outcomes like decreased employee motivation. Lack of procedural justice in reward distribution can lead to counterproductive behavior, while equity can motivate and retain employees according to efficiency wage theory. Discriminatory businesses risking talent loss might be pressured by the market to offer competitive salaries.
Step-by-step explanation:
Managers should take into account equity theory when distributing rewards because when employees perceive a negative inequity, such as experiencing unfair treatment in terms of compensation or recognition compared to their peers, they are likely to suffer from decreased motivation and productivity.
This phenomenon is closely related to procedural justice, which deals with the fairness of the processes determining the distribution of rewards or resolving disputes. An illustrative study by Greenberg (1993) highlighted that employees given insufficient explanations regarding their pay were more inclined to take more money than they deserved. They perceived a lack of procedural justice, leading to such counterproductive behavior.
In contrast, efficiency wage theory posits that employees' productivity is linked to their compensation, suggesting that paying employees more than the market rate can be beneficial. It encourages workers to work harder and remain with the current employer, acknowledging the higher costs linked to hiring and training new staff. Therefore, equity in compensation not only prevents negative feelings among employees but also serves as an investment in workers' motivation and productivity.
On the other hand, a discriminatory business that underpays its workers may drive them to seek employment elsewhere, with employers offering better compensation. Eventually, such market pressure could incentivize the original employer to adjust its practices and offer fair, competitive pay to retain and attract talent.