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Equity Theory

Equity Theory was originally developed and published in John S. Adams book “Inequity in social exchange.” In organizational behaviour, equity theory looks at the value that workers place on fairness in organizations. That is, workers look to assure that the effort, creativity, talent and successes they contribute to an organization are rewarded equally. The high value that workers place on fairness motivates workers to try to maintain this equity. This goes both ways, and employees also try to limit preferential treatment they receive over their coworkers.

Equity theory reinforces notions that employees look at work as having a larger role in their lives than meeting basic needs. Employees see their successes and their relationships at work as contributing to higher level needs, such self-esteem and self-actualization. Equity Theory also reinforces Douglas McGregor’s Theory Y, the workers are naturally productive and cooperative.

Four Assumptions:

  1. Individuals in an organization look to maximize positive outcomes.
  2. Co-workers tend to reward those that treat others equitably and punish those who do not.
  3. Job satisfaction is lower when rewards are unequal. Both parties become upset: those who are rewarded may feel guilty and those who are overlooked may be angry or embarrassed.
  4. As a result, co-workers are motivated to restore and maintain fairness.

Equity: What is equity?
The idea of equity suggests that employees look to get a similar amount out of the effort they put in relative to other employees. Equity theory can be described using the following equation, which compares an employee's inputs (what an employee feels they contribute to an organization) with an employees outcomes (what an employee feels they get from the organization in return).

In the equation, "inputs" recognizes that employees contribute things like time and aptitude, but may also bring negative characteristics (such as a temper) that are perceived as offsetting or reducing an individual’s contribution. Inputs typically include things like: time, hard work, effort, enthusiasm, leadership, initiative, trustworthiness, helpfulness and helping others, talent, knowledge, skill, aptitude, disposition/attitude, willingness to change, likeability, kindness, good looks, and status.

Outcomes include things that employees look to get out of an organization. Some examples of outcomes that employees look for include: thanks and recognition, job security, pay and fringe benefits, responsibility, promotion, trusting relationships, perceived upward mobility, and reputation.

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