A Role for Equity Theory in the Turnover Process Essay

The purpose o f the present study was to examine the role o f equity theory in the context of the contemporary turnover process. A model was developed and tested with 192 hospital employees using structural equation modeling (SEM), which placed satisfaction and intention to quit as mediators of employee turnover. The results strongly support the present model, but also suggest a role for other mediators, some of which are suggested for future research. Equity theory (Adams, 1963, 1965) continues to be a major model stimulating considerable research regarding work motivation in recent years (Bretz & Thomas, 1992; Carr, McLoughlin, Hodgson, & Maclachlan, 1996; Glass & Wood, 1996; Greenberg, 1990; Harder, 1991, 1992; Huseman, Hatfield, & Miles, 1985, 1987; Johnson & Johnson, 1991; Joshi, 1990; King & Miles, 1994; King, Miles, & Day, 1993; Miles, Hatfield, & Huseman, 1994; Perry, 1993; Sheehan, 1993; Sweeney, 1990; Van Dierendonck, Schaufeli, & Sixma, 1994). Briefly summarized, equity theory suggests that an employee compares the ratio of his or her outcomes to inputs to the ratio of outcomes to inputs of some referent other. Employees who perceive themselves in an inequitable situation will be dissatisfied and will try to reduce the inequity. Although Adams (1963,1965) proposed a number of ways that employees might reduce inequity, research concerned with organizations has tended to focus on employee reactions to pay inequity, such as low performance and dissatisfaction (Greenberg, 1990). Leaving the situation (i.e., voluntary turnover) was also postulated as a tension reaction mode by Adams ( 1 963, 1965), but only a few studies have examined the impact of inequity perceptions on turnover in the context of contemporary ideas regarding a turnover process (e.g., Horn & Griffeth, 1995; Mobley, 1977). The purpose of the present study is to test the relationship between equity perceptions and turnover within the context of such a contemporary turnover process model.  Ã¢â‚¬ËœThe authors greatly appreciate the comments of Peter Hom, Debra Cohen, Peggy Lewis, and two anonymous reviewers on earlier versions of this paper. 1018 GRIFFETH AND GAERTNER Early research into the equity-turnover relationship, using aggregate rates of turnover, found mixed results. For example, Telly, French, and Scott (1971) found aggregated perceptions of equity within subunits of an organization to be significantly related to that subunit’s turnover rate for the previous 11 months on five of the seven dimensions (e.g., supervision, social aspects). Dittrich and Carrel1 ( 1 979) developed and tested a five-dimension measure of equity perceptions that they called the Organizational Fairness Questionnaire (OFQ). They found that the five factors (pay rules, pay administration, work pace, pay level, and rule administration) underlying the OFQ were not predictive of turnover rates by department. However, pay rules (a factor that combines comparisons of one’s own pay to that of coworkers with the fairness of the rules for granting pay increases and promotions) and work pace (fairness of the supervisor in maintaining a fair pace of work activity) were predictive of absence. While not directly predictive of turnover, employee perceptions of the fairness of pay rules and equality of pay among coworkers and of supervisor control of the work pace were strongly predictive of job satisfaction ( R 2 = S8). Equity and Individual Turnover At the individual level, tests of a direct relationship between equity perceptions and turnover have also had mixed results. For example, Oldham, Kulik, Ambrose, Stepina, and Brand ( 1 986) found that equity perceptions in combination with job complexity descriptions were marginally predictive of  turnover. Vecchio, Griffeth, and Hom’s (1986) initial findings were that perceptions of supervisor control over work-pace equity were significantly related to turnover. However, when leader-member exchange quality was added, this variable fully mediated the equity-turnover relationship. Finally, Randall and Mueller (1995) found no significant direct relationships between turnover and distributive or procedural justice perceptions. They suggested two plausible explanations for this lack of significant findings. First, the effect of equity on turnover is not direct, but rather is mediated by several other variables such as job satisfaction, organizational commitment, and intention to stay. Second, a lack of alternative employment opportunities among the nurses in their sample induced them to stay despite possible inequities. This latter explanation seems less probable since turnover and shortage rates among nurses remained high into the mid-1990s (Hom & Griffeth, 1995). Another set of studies has examined the relationship of equity perceptions to intention to stay. The results in these studies have also been mixed. Scholl, Cooper, and McKenna ( 1 987) found that comparisons using others outside the company in similar jobs and comparisons of one’s own pay in the past were significant predictors of turnover intentions. However, Ronen (1 986) found that neither equity referent (others inside the organization or others outside the organization) nor job level (skilled workers vs. managers) was significantly  related to turnover intentions. Finally, Berg (1991) found that global perceptions of equity were significant predictors of intention to stay among television employees. Strictly speaking, however, Berg did not actually measure equity. Instead, he asked employees to assess their perceptions of fairness without reference to some comparison other. Again, it seems plausible, especially based on Adams’ (1 963, 1965) theory, that job  dissatisfaction would be the immediate result of inequity perceptions, mediating the effects on turnover intentions and actual turnover. In conclusion, these studies show relatively weak or inconsistent support regarding the relationship between inequity perceptions and turnover. There are several reasons for this inconsistency. First, all of these studies examined the direct influence of equity on turnover, generally ignoring the mediating role of felt tension of job dissatisfaction (Adams, 1963, 1965). Some studies attempted to link equity perceptions to intention to stay (or quit), a weak test of the equityturnover relationship. According to Steel and Ovalle (I 984), intention to quit is a relatively poor surrogate for actual turnover, typically accounting for less than 25% of turnover variance. Moreover, the earlier studies were unable to take advantage of recent advances in the study of turnover identifying the process of employee turnover (Horn & Griffeth, 1991, 1995; Hom, Griffeth, & Sellaro, 1984; Mobley, 1977). Contemporary turnover theorists posit a series of cognitive and affective linkages translatingjob dissatisfaction into turnover cognitions and behavior. Perhaps the major weakness of each of these studies was the omission of satisfaction as a mediating variable. More recent models that propose linkages between equity and turnover explicitly incorporate perception of equity as an exogenous variable that has an impact on turnover via job satisfaction and quit intentions (Hulin, Roznowski, & Hachiya, 1985; Price & Mueller, 198 1). Two studies have placed the equity-tumover relationship within the context of such a process model. Summers and Hendrix (1991) included perceptions of pay equity for comparisons with a generalized other (someone of similar knowledge, skills, and abilities), self (past), others inside the company, and others outside the company. Respondents were then asked to select the three most important referents. Only the equity perceptions with regard to the single most important referent were used as a measure of pay equity. Of respondents, 6% chose others outside of the company as their most important referent. A generalized other was the most frequently selected, followed closely by self (past). The model test revealed a significant mediated relationship between pay equity and turnover. The significant and hypothesized intervening variables were pay satisfaction, overall job satisfaction, and intention to  leave. Iverson and Roy (1994) performed a relatively comprehensive test of the Price and Mueller (1981, 1986) turnover model, which specifically includes elements of equity perceptions of various benefits and pay in relationship to coworkers. Although the correlation coefficient for the relationship between equity and job satisfaction was positive and significant, the hypothesized and  revised model yielded a negative (also significant) relationship between the two variables. Such a reversal may be indicative of multicollinearity (Neter, Wasserman, & Kutner, 1990) and suggests that a more parsimonious model might be practical. A second weakness of this test of the equity-turnover relationship is the use of behavioral commitment, or intention to stay, rather than actual turnover as the ultimate dependent variable (Steel & Ovalle, 1984). However, both the hypothesized and the revised model confirm affect Cjob satisfaction) as a mediator of the relationship between equity and intention to stay. For both of the process model tests, the conceptualization of equity was narrowly limited to distributional outcomes, such as pay and benefits (Iverson & Roy, 1994; Summers & Hendrix, 1991) or to comparison others inside the organization (Iverson & Roy, 1994). Prior research has found multiple comparison others to be important and, although pay seems to dominate perceptions of equity (Berg, 1991; Scholl et al., 1987; Summers & Hendrix, 1991), other facets are also important (Oldham et al., 1986; Telly et al., 1971; Vecchio et al., 1986; Wilhelm, Herd, & Steiner, 1993). It is the primary purpose of the present investigation to reexamine the role of equity perceptions within the context of contemporary turnover theory and empirical research at the individual level of analysis. Toward this end, a model of this process is developed and tested based on equity theory. Both the predictive and nomological validity of this model are examined using structural equation modeling (SEM). This model and the hypothesized relationships among the model constructs are shown in Figure 1. Model Development The present model posits a turnover process initiated by perceptions of  inequity in relationship to three key determinants of job satisfaction: pay satisfaction, satisfaction with one’s supervisor, and satisfaction with the work itself. We postulate perceptions of inequity as determinants of these facets of job satisfaction, and, in doing so, we expand on two components of Adams’ (1 963, 1965) equity theory. First, Adams’ conceptualization of equity as concerned with the ratio of inputs to outcomes only (distributive justice) reflects the contemporaneous understanding of justice. More recently, justice has been characterized as a process, and researchers have delineated two meaningful elements in addition to distributive justice as important to explaining perceptions of justice (Bies & Moag, 1986; Greenberg, 1990). These two elements are procedural justice, which refers to the rules and procedures used to arrive at the distribution of outcomes, and interactional justice, which refers to the way those who carry out the process relate to the recipient party (Bies & Moag, 1986; Greenberg, 1990). While these elements tend to be highly correlated, each uniquely adds to our understanding of the justice perceptions and reactions to those perceptions (Folger & Konovsky, 1989; McFarlin & Sweeney, 1992).