Overview of the theory

In 1963, John Stacy Adams founded the Equity Theory of motivation often addressed as Adam’s Equity Theory to explain the relationship between input and output of the employee deriving their level of motivation. To elaborate, the theory explains that it is crucial for employers to maintain the right balance between input and output to maintain the motivation of employees in a workplace.

Image Explaining The Equity Theory

The following are factors that are referred to as the input from the employees’ side

  • Skill Sets
  • Efforts
  • Loyalty
  • Support from the management
  • Enthusiasm
  • Determination

On the other hand, below mentioned are the outputs that are expected from the employer’s side

  • Salary
  • Recognition
  • Rewards
  • Promotion

Further stating, Adams explained that if the employees are satisfied with the balance of inputs and outputs, it can lead to a healthy relationship of the employee with the management along with an enhancement in the productivity rate. On the contrary, if the employees feel that their inputs are more than the output they received it can lead to demotivation of the employees and every employee can have different reactions to express their dissatisfaction. Reduction in productivity, mental burnout, or even job change in critical cases can be the possible reactions of the employees when demotivated.

So, it is important to understand that providing equivalent value to an employee’s inputs should be taken care of by the management. Once it is established, the employee results would also be progressive. In fact, another motivational theory namely, the Value Percept theory works on the same line. It also suggests that employees are more satisfied with their jobs when they receive the equivalent value to their inputs..

To continue, employees use 4 types of referents to calculate the fair balance of input and output of the efforts invested. Below mentioned are the 4 situational variables that can affect the outcomes of the referents.

1. Different positions in the same organization

Employees can compare the output ratio of the company when they have experienced two different positions in the same organization. This can occur due to either promotion or change in the department.

2. The same position in different organizations

Another case of comparison occurs when an employee compares the output ratio of the current company with the output ratio of the previously worked company. When an employee changes the company due to some reason and compares himself with his ex-colleagues can be a situational instance of this variable.

3. With other team members of the same organization

The third situational variable occurs when the employees compare themselves with the other members of the organization. This is the most common form of comparison that occurs within an organization.

4. With employees of different organization

Last but not least variable is when employees compare themselves with other employees working in another organization of the same industry. This comparison usually occurs between friends, ex-colleagues, etc.

Adam created this theory based on the 2 assumptions stated below

  • Along with the concern about the rewards awarded to themselves, employees are concerned about the rewards awarded to other employees in or outside the organization as well.
  • Unsatisfactory outcomes of the employees often result in reduced productivity and motivation of the employees.

Probing further, Below mentioned are a few strategies that can be implemented to avoid the imbalance of the inputs and outputs at the workplace.

Implementation of the theory in a workplace

1. Conduct regular feedback sessions with employees

Regular feedback sessions with employees will give a clear picture to the employees whether their invested inputs are on the right track or not. If not, how they can be improvised. This will ensure that the employees are aware of the deserving outcomes and have a valid justification for them.

2. Avoid discrimination

Employers should always avoid discrimination based on race, religion, age, sex, or nationality because this will lead to demotivating employees and affecting their performance negatively. A common instance of this situation can be experienced on employer’s discrimination based on gender. To elaborate, it is observed that male employees often have higher paychecks compared to women in many workplaces.

3. Know the value drivers of your team

Satisfying outcomes can be different for every employee in different workplaces. Hence, it becomes an obligation for the employer to identify the rewards that hold utmost value for the employees. This will encourage them to work more effectively and efficiently.

4. Implement open-door policy

An open-door policy should always be implemented in a workplace to ensure a smooth workflow. Because whenever an employee feels demotivated in a workplace due to any situation, they should have the right to talk to a higher authority and demand a valid justification. This will enhance the employees’ trust and loyalty in the workplace and ensure the practice of smooth workflow.

5. Be transparent while rewarding

Whenever an employee is awarded promotions or other monetary and non-monetary benefits, other employees should be well aware of the reason behind it. Because that way employees will be able to know the bar they need to cross to get the desired reward and will calculate their outcome ratio according to that.

Moving ahead, implementing this theory can bring many benefits along and some of them are mentioned below

Importance of implementing the theory

  • This theory will assist in identifying and eliminating equity problems in the workplace. This will lead to the creation of healthy work culture and increase the motivation of the employees.
  • This theory helps in understanding the importance and impact of practicing equality. Because theory explains how equality can be a major factor influencing the motivation of the employees and how inequality can be a cause of loss for the company.
  • Effective implementation of theory can boost the morale of the employee which can further lead to more productivity and satisfaction for the employees.

Along with the advantages, some of the limitations also need to be considered while implementing this theory in the workplace

Limitations of the theory

1. Lack of situational variables while comparing

The theory fails to address the situational factors that might influence the input and output of the employees. Factors such as family problems and intention of performing are neglected while conducting the comparison.

2. Individual differences are neglected

Another limitation of the theory is that all individuals are not the same and the efforts invested by every individual may not be equally efficient and effective while working in the same position. Hence, it may get difficult for the employer to provide the same amount of output to all the employees.

Moving ahead, relating the theory with a real-life example of a company practicing the equity theory will assist in understanding the concept in a more efficient manner.

Example of implementing the theory in a workplace

HP or Hewlett-Packard Company is American multinational information technology that is famous for its hardware advancements across the globe. The California-based company provides employment to almost 51 thousand employees.

Accounted for handling such a big workforce, the company is also known for practicing the value of paying fairly and equally to all the employees in the company.

HP applies the equity theory in the workplace and believes in paying every employee based on their input invested in performing the job. The company believes in paying every individual irrespective of their gender, race, or any other personal characteristics.

Moreover, the company claims that they set pay ranges for every employee based on the market data and prioritize the role and experience of the employees before deciding their salary package.

Last but not the least, the company believes in regularly reviewing the practices of compensation of employees' input in terms of the overall performance of individual employees as well as of the whole team to ensure that the salary package is fair and equitable.

This non-discrimination between the employees builds up the confidence and boosts the morale of the employees which further makes them more productive and motivated to work for the betterment of the company.

Key takeaway - Implementation of the equity theory in the workplace assists HP in enhancing the productivity of the employees by keeping them motivated and happy by providing equal pay and reviewing the compensation regularly.

FAQs

How does the Equity Theory relate to reward systems in organizations?

In organizations, the Equity Theory highlights the importance of fair and transparent reward systems. Employees are more likely to be motivated when they perceive that their efforts are appropriately recognized and rewarded in comparison to their colleagues. A perceived lack of equity in the reward system can lead to dissatisfaction and reduced motivation.

Can the Equity Theory explain why some employees become demotivated despite receiving high rewards?

Yes, the Equity Theory can explain this phenomenon. If an employee perceives that they are being over-rewarded compared to their colleagues who put in similar or greater efforts, they might experience guilt or a sense of unfairness. This perception of inequity can lead to feelings of demotivation, as they may feel uncomfortable benefiting at the expense of others.