Equity theory, the idea that workers should be compensated fairly based on their contributions, is a popular concept in today’s workplace. But what happens when equity theory is taken to the extreme? The case of the Alaska Permanent Fund is a prime example.
The Alaska Permanent Fund was established in 1976 to compensate Alaskan residents for oil discovered on the North Slope. The idea was that a portion of the revenue generated from oil sales would be put into a permanent fund, and the interest earned would be distributed to Alaskan residents as a yearly dividend.
At first glance, this seems like a fair and equitable system. But the devil is in the details. Long-standing Alaskan residents who had been in the state before the fund was established received no premium. Instead, the criteria for divvying out new funds relied on a non-binding “intent to stay” in the state. New residents would receive an equal payment from the government, regardless of how long they had been living in Alaska.
This system created a number of problems. First, it created an incentive for people to move to Alaska just to receive the dividend. This led to a population boom in the state, which put a strain on resources and infrastructure. Second, it created an unfair system where long-standing residents were penalized for being loyal to their home state. And finally, it created a culture of entitlement, where people felt that they were owed something just for being a resident of Alaska.
Equity theory is important, but it should not be taken to the extreme. Compensation should be based on merit, not just tenure or residency. A fair and equitable system should take into account a person’s contributions to the company or society as a whole, rather than just their length of time spent in a certain location.
In the case of the Alaska Permanent Fund, it might be time to re-evaluate the system. Perhaps a sliding scale based on residency or contributions could be implemented. Or, the dividend could be tied to specific investments in the community or education programs.