What is equity theory?
Equity theory evaluates the inputs and outputs for each party in a relationship. In the relationship between an employee and a company, both are expected to provide something of value for the other. “Input” refers to the things that the employee gives the company, such as time, energy, expertise, skill and personal sacrifice. “Output” refers to what the employee receives in return, such as pay or salary, benefits, promotion and recognition.
Equity theory’s definition holds that people are most motivated when they feel they are being rewarded fairly for their work. If an employee’s input is greater than the perceived output from the company, the employee will likely feel exploited and unappreciated.
Notably, the theory also suggests that employees can lose motivation if receiving more rewards than they believe their input has warranted. In these cases, they might assume that doing the bare minimum is enough to get by and therefore act accordingly.
Equity is achieved when there is a perceived balance between the effort exerted and advantages experienced by an employee. Job satisfaction and quality of work increases when employees feel they are being treated fairly and getting what they deserve in return for their hard work.
As humans, we tend to like instant gratification. Even when long-term opportunities for raises and promotions exist, people are quicker to respond to immediate rewards such as money, bonuses and old-fashioned appreciation. Something as simple as a daily affirmation can greatly improve an employee’s sense of worth.
Equity theory in the workplace
While equity theory isn’t your traditional method of motivation, it is a powerful tool employers can use to maximize their team members’ effort and satisfaction on the job.
Individuals have distinct opinions on what they consider fair compensation for their efforts. A lot of people are gratified by an ample paycheck, but others respond better to intangible rewards such as praise, validation and increased responsibility.
A fascinating extension of equity theory asserts that people look to others’ relationships to decide whether or not they are being treated fairly within their own. For example, employees may experience distress if they perceive that a coworker is receiving a different level of rewards for providing the same amount of input.
It’s all about communication
The best way to achieve equity in your relationship with employees is to have open conversations about what each party expects from the other. The sooner these conversations can happen, the better.
When hiring new team members, employers should clearly outline the conditions of the position. How many hours will be required each week? Does the employee need to be available evenings, weekends, holidays or even around the clock? Is the environment relaxed or fast-paced? Will the work be mainly independent or collaborative? Such information gives job candidates a better idea of the type of input they’ll be expected to provide.
You can also address equity with current team members. Schedule a one-on-one meeting with each of your employees to discuss their level of satisfaction on the job. Ask them directly whether or not they feel like they are treated fairly. If the answer is no, it’s time for a candid and constructive conversation about what that person offers in terms of input and what that person needs in terms of output.
It can be tricky for prospective and current employees to engage in such conversations, particularly when they feel their relationship with the company is inequitable. Considering what equity theory is, it’s critical to respect your employees’ need to be self-advocates in negotiating their salary and other outputs until they reach what they consider a fair agreement.
