Glossary   >  Equity Theory

Equity Theory

What is Equity Theory?

Equity theory at the workplace states that employees wish to maintain a fair ratio between their input (performance) and the received output (rewards and compensation) compared to the others. If there is a difference or if it is found that the employee’s inputs are greater than the outputs, it leads to their demotivation. Whereas, if the ratio is comparatively similar, the employee seems to be satisfied.

Frequently Asked Questions

How does an equity theory impact your employees?

Equity theory indicates the idea of treating every individual fairly. When an employee is paid unfairly, they can feel inferior and become less productive. Meanwhile, If an employee is paid unnecessarily more, they might feel they’re superior to other employees.

Why is equity theory used?

Equity theory represents workplace equality. Every organization has its own targets and goals, treating each and every employee equally and fairly can be benefitting. To create a fair balance among the employees, providing a fair compensation, and understanding their needs; applying equity theory is quite manageable.

What are the inputs and outputs of equity theory?

The inputs and outputs of equity theory are mentioned below:

Inputs:

  • Efforts
  • Skills
  • Ability
  • Loyalty

Outputs:

  • Salary benefits
  • Job security
  • Recognition
  • Career progression

How to implement equity theory?

Equity theory can be quite helpful to measure the satisfaction of the employees at the workplace. It helps keep a fair balance between the employees.

How are equity theory and organizational behavior correlated?

It is human nature to be affected by the outcome of the work. Similarly, in a workplace when the employees are treated fairly and in a balanced way they work with a lot of interest and dedication. This improves productivity of the employees which gives positive outputs for the organization.

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