Equity theory sounds rather scientific, but what it boils down to is how happy your staff are in the workplace and how fairly they think they are being treated. If your staff are happy, engaged and rewarded, then their productivity and effectiveness is likely to be much better. Their satisfaction at work is directly linked to what they are putting into it and what they are getting out of it.

If an individual believes they are getting fair recognition and rewards compared to those around them or in similar businesses, then things are balanced. However, if the same employee believes that others around them are getting more recognition than them it will create imbalance. This in turn can lead to demotivation, demoralisation, lower productivity and in the extreme, disruptive behaviour.

As a business owner or manager the last thing you want is employees not performing at their best and costing you clients or income. But if you can find a balance between what your staff put into your business and what they get out of it, it will benefit your organisation long term.

How to apply the equity theory

If you want to apply equity theory in your business you need to consider what balance or imbalance currently exists between the inputs and outputs. Inputs will typically include effort, hard work, skills, flexibility, enthusiasm, commitment and ability while outputs are tangible things like salary, benefits and perks as well as intangible things like recognition, reward, praise, responsibility, reputation, a sense of achievement, job advancement and training.

As a business it’s not always possible to quantify all those different inputs and outputs but everyday your staff will be mentally calculating and seeing if there is a balance between the two – it won’t be a conscious decision, but rather a general sense of whether there is fairness or not.

If they feel their inputs are equal to their outputs they’ll work at current levels, and if the inputs exceed the outputs from the company it can have a negative effect on their productivity. This may also affect other employees who take a mental step back as well. As a leader, you want to get them thinking their inputs are either equal or less than the company’s outputs so it creates a mindset of feeling like they’re satisfied and loyal, and therefore work harder.

As a leader it’s important to keep a check on the atmosphere within your company. The intangible benefits often outnumber the tangible ones and if you’re vigilant you’ll soon get a sense of whether it is a positive or toxic culture you’re fostering. Recognising the people in your business is one of the best ways of keeping balance – reward them, support them, make them feel valued, give them more responsibility and help them grow both professionally and personally. Remember it’s often not about the money and a little bit of care and attention will go a long way.

What are the strengths and weaknesses of the equity theory?

Highly effective employees are the ones who perceive their inputs to be equal to their outputs, but the problem with this is not everyone sees their contributions and rewards in the same way in practice.

The equity theory also doesn’t specify what or who will be compared to what – should you compare to other employees, departments or companies? And will that even work because one company culture might be very different to yours and not suitable for your business model anyway. And what will you choose to reduce inequity? What works for one person will not necessarily work for another who might still perceive inequity and be demoralised.

However, the theory does help to predict behaviour when it comes to underpaying employees. Various studies point to the fact that if they’re not paid enough they will redress the balance by other means such as increased stealing of company assets.

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