The Equity Factor at Work
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Let's play a game.
Here are the rules: We'll be asked to split a sum of money. I get to make the
split and you get to choose whether to accept or reject the split. And if you
reject it, both of us will walk away empty-handed.
Rationally, I should realize my advantage and offer a lopsided split in my
favor and you should accept the uneven split - because any amount of money is
better than nothing. Right?
Wrong. If we're like everyone else who plays the game, we'll end up with an
Here's why . . .
While the fairness of the split shouldn't logically affect the second player's
decision, it nearly always does. If offered a lopsided split, the second
player will reject the deal, and neither player will get any money. So most
people end up offering a fifty-fifty split to the second person.
To find out why people react in this way, a team of Princeton researchers
attached players to functional MRI machines. They discovered that when people
are offered an unfair split, a primal part of their brains known as the
anterior insula sends out signals of disgust and anger. It doesn't matter one
little bit that rejecting the split - regardless of how unfair - is an
irrational financial decision. It feels right.
That's the power of what I call "the equity factor." And it has everything to
do with leadership in turbulent times.
A close look at the psychology of relationships reveals that most individuals
automatically attempt to keep a mental balance between what they contribute to
a relationship and what they get back from it. When employees believe that
they are putting more into their company than they are getting back, or when
they do not perceive the rewards distribution to be equitable, engagement
When employees look for balance through equitable treatment, it is their
perception of the treatment, rather than the treatment itself that
defines reality. I once interviewed employees at a public utility where
workers were negotiating a two-percent raise that management was resisting. At
that same time, the fleet of corporate vans was being repainted. Instead of
viewing this as a necessary expense, the employees' perception was that it was
unfair of the company to spend money on vehicles while it argued about a
salary increase with employees: "How dare they throw money at those trucks and
then quibble about a lousy two-percent raise!"
The CEO of a chemical manufacturing company put it this way: " As a leader you
must make it a routine part of your decision-making process to ask the
question: Will this action be perceived as equitable?"
As companies downsize, restructure and refocus, employees are asked to do more
and work harder. And they have, on the whole. But their resentment is most
frequently seen in their reaction to executive compensation. Big disparities
in pay between executives and the work force, especially in times of
downsizing and plant closures, can destroy employee engagement - just when it
is most needed.
Here's how one employee sees it: "The biggest budget cuts were
employee-focused. They eliminated all our merit increases, rewards and
recognition programs. And then the top management got bonuses. I used to be a
'gung-ho' employee. Now I think my loyalty has been misplaced "
The issue here goes beyond compensation - and right to the heart of the equity
About the Author
Kinsey Goman, Ph.D.is an international
Keynote speaker on collaborative leadership and the impact of
language in the workplace.
coach to executives to improve their leadership presence and
Leadership blogger for Forbes and author of "The Silent Language of
Leaders: How Body Language Can Help - or Hurt - How You Lead.”
Carol@CarolKinseyGoman.com Authors Google+
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Article Published/Sorted/Amended on Scopulus 2009-11-25 13:36:40 in Employee Articles