What is Equity theory?

Whether you're a beginner or an expert, you will find this Glossary useful.

Equity theory refers to defining and measuring relational satisfaction of employees in a company.

what-is-equity-theory

Equity theory definition

Equity theory refers to defining and measuring relational satisfaction of employees in a company. It inspects employees' satisfaction based on the balance between what they give to the company against what they receive.

Inputs: time, effort, loyalty, commitment, reliability, integrity, tolerance, enthusiasm, skill etc

Outputs: pay, bonus, perks,j ob security, benefits, sense of achievement, praise, reputation, responsibility etc.

Stages of equity

1. Equity tension: when the employee’s output to input ratio is lower than the employer’s ratio, so he/she feels under-rewarded and demotivated.

2. Perfect equity: when the Output-Input ratio is equal.

3. Equity tension: when the employee’s ratio is greater than the referents’ ratio so he/she feels over-rewarded.


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