Rewarding Work Team Members: Equality vs. Equity

Managers of work teams sometimes face a dilemma in determining a reward system. Do you compensate team members by equality, where everyone gets the same reward, or by equity, where team members receive different amounts proportional to their contributions?

No matter which system is chosen there are tradeoffs, but a research project by Andrea Sinclair, a doctoral candidate at Virginia Tech University, has led her to some conclusions that may help managers make allocation decisions.

She will be presenting her findings at the annual conference of the Society for Industrial and Organizational Psychology April 11-13 in Orlando, FL.

Sinclair defines work teams as interdependent groups of people sharing responsibility for specific outcomes. Team numbers vary, depending upon the assignment, but they can range from three to more than 20, she says.

The use of work teams has grown dramatically in recent years: in large and small companies, at management and employee levels and in both manufacturing and service organizations. The Center for Effective Organizations reported in 1993 that 91 percent of companies used work teams. Because the ability to work as part of a team is a commonly required skill in today's workplace, 77 percent of organizations provide training for team skills, according to a 2001 industry report in Training Magazine. "Clearly there is an extensive use of teams in the workplace, says Sinclair.

Sinclair's study of 132 work teams showed that depending upon whether teams are rewarded equally or equitably, there are some differences. For example, if a project has a quick turnaround time, she found that teams are more productive in accomplishing the goal if they are being rewarded equitably. "People in equity-rewarded teams tend to be more productive, but they also tend to be less cooperative and the quality of their work suffers," she notes. So it would seem equity-based rewards are good for the short haul but not for longer periods.

On the other hand, equally rewarding teammates led to greater cooperation among team members and a better quality of work. However, the tradeoff is that a lower level of productivity is likely to occur.

"The research suggests that under severe time constraints, when productivity is more important than quality, managers may want to use an equitable rule. But when quality is valued over productivity, then an equality rule may be more preferable. However, productivity and quality are simultaneously valued by organizations thereby placing work teams between the proverbial rock and a hard place," says Sinclair.

A resolution to the dilemma may lie in something industrial/organizational psychologists call procedural justice, which relates to the fairness of the procedures used to make reward allocations. When individuals perceive that rewards are distributed fairly and that the method is clearly and sensitively communicated to them, then team members are more likely to accept either reward system.

Sinclair notes that previous research shows that as the level of procedural justice increases, people tend to be more harmonious in their interpersonal relationships and thereby more cooperative. Moreover, she says, procedural justice is associated with decreases in team conflict and disruptive behavior.

Her study showed that where there is a high level of procedural justice, teams rewarded on an equity basis were high on quality and team cooperation and also demonstrated higher productivity than teams that employed an equality reward system. If a manager or team leader is up-front with the team and explains how the rewards will be distributed and how the team and its members will be evaluated, then people are more likely to be effective team members. "If procedural justice is high, meaning that everyone starts on the same page and there is good two-way communication, then team members should perceive a high degree of justice, which should contribute to the effective functioning of the team," says Sinclair.

She says that organizational and procedural justice is a hot research topic among industrial-organizational psychologists because it is so important in the workplace. "Everyone has innate feelings about what constitutes fair treatment and these kinds of studies provide a greater understanding of those feelings as they apply to the workplace," says Sinclair.

And what to do when a member of a team that is being equally rewarded is clearly performing at a higher level than his/her colleagues? Then, says Sinclair, the manager may want to consider a variable, or mixed, reward system that contains elements of both equality and equity. This allows managers to do something extra for that person who is contributing more to the team.

A drawback to equitably rewarded teams is the competition that sometimes results, notes Sinclair. Some forms of team competition are good, but when people become too competitive, they tend to be less team-oriented and more concerned with their own welfare, which can have a negative impact on the team's effectiveness.

At any rate, says Sinclair, establishing a team reward system can be tricky and there are pros and cons to both equity and equality, but the pros tend to outweigh the cons when high levels of procedural justice are incorporated into the reward system.

The Society for Industrial and Organizational Psychology (SIOP) is an international group of 6,000 industrial-organizational psychologists whose members study and apply scientific principles concerning people in the workplace.

From April 11-13, 2003, SIOP will be holding its annual meeting in Orlando, Florida. More than 3,000 top workplace scientists and practitioners will attend and present research on emerging trends and the way people function in the workplace.

SIOP has a website at www.siop.org. There is a special section for media. Just click on "Media" for more information about this organization and a database of more than 1,400 people with expertise in different areas of this field.