The Equity-Equality Conflict—Dilemmas in the Management of Reward Systems

Abstract

This article investigates the factors that determine workplace actors' appeal to social norms of fairness in some situations and what 'fairness' is perceived as consisting of. This article presents central concern of motivation theory, where rational choice decisions are counterbalanced by endowment effects or other fairness concerns. Management is placed in a dilemma between what is, e.g., an economically rational structure of incentives, on the one hand, and what is considered as equitable by employees, on the other. Since equality in reward counts for more among employees, while equity in contribution counts more for employers, this is an inherent dilemma, constantly having to be negotiated and solved, but never reaching any 'final solution' in any company. On the basis of this dilemma, implications for management are spelt out, and recommendations for the utilization of and limitations for pay variance among peers are given.