Why is equity theory important?

1. Career development
2. A Guide to Equity Theory of Motivation

By Indeed Editorial Team

Updated December 29, 2020 | Published October 7, 2019

Updated December 29, 2020

Published October 7, 2019

If an employee feels they’re receiving fair payment for their efforts, they are more likely to stay motivated and find satisfaction in their position. This concept is called the equity theory, which you can use to help your team stay motivated. In this article, we will discuss the equity theory of motivation and how you can apply it to your workplace.

What is the equity theory of motivation?

The equity theory of motivation is the idea that what an individual receives for their work has a direct effect on their motivation. When applied to the workplace, it means an individual will generally aim to create a balance between what they give to the organization compared to what they get in return. 

Understanding the role of equity theory in professional environments can be helpful when you want to ensure that your team feels properly motivated and appreciated for their work. When you offer fair compensation for your team’s contributions, they may maintain higher levels of motivation. This can have a positive effect on factors such as teamwork, job commitment and communication.

Related: Interview Question: “What Motivates You?” (With Examples)

Components of the equity theory of motivation

The equity theory contains two primary components: inputs and outcomes. It is a team member’s perception of these two factors that can influence their motivation levels.

Inputs

An input is a contribution one makes to receive a reward. Different inputs can include time commitments, daily job responsibilities, loyalty to an organization and enthusiasm for one’s work. 

An employee will often distinguish between inputs they consider controllable and not controllable. Examples of controllable inputs include communication and attendance, while uncontrollable inputs could be job training and seniority.

Outcomes

An outcome, or output, is the compensation that an individual receives as a direct result of the input they provide. 

Outcomes can include hard factors such as:

• Salary and pay raises

• Job security

• Benefits like healthcare or vacation time

There are also less tangible outcomes:

• Praise from coworkers

• Improved reputation

• Pride in one’s work

The value of the outcome should ideally result from the importance placed on the input. For example, a college graduate may believe that their degree should return better job opportunities. 

Related: Intrinsic vs. Extrinsic Motivation

Factors that affect equity theory

The theory of equity includes factors known as referents and moderating variables. These elements can influence an employee’s perception of what is fair.

Referent groups

Referents are comparisons that an employee can make to form their evaluation about an outcome they receive. The four primary comparisons are:

• Self-inside: Includes the experience an employee had when they were in a different position in their current organization

• Self-outside: Encompasses the employee’s experience in other positions outside of the company

• Other-inside: Involves a comparison to another employee’s inputs and outcomes in the same company

• Other-outside: Consists of a comparison to employees in a similar position outside of the current company

An employee may use one of these four referents to determine how fairly their employer treats them. For example, one of your team members may have come from a company that didn’t recognize their work. If you consistently praise that individual when they exceed their goals, they will likely make a self-outside comparison to conclude that they are currently receiving fairer outcomes for their work.

Moderating variables

Moderating variables such as someone’s education and experience level can also have a direct effect on their perception of fairness. For example, those with higher education levels may have connected with a larger number of people in their field, which could prompt them to make other-outside comparisons. Employees who have more experience in their field or company are more likely to make internal comparisons, while others with less experience will more often rely on personal knowledge.

Related: Using Performance Management in the Workplace

How to apply the equity theory of motivation in the workplace

Equity theory can help you gain a better understanding of the different factors that influence your team’s motivation levels. If you want to apply the equity theory in your workplace, consider the following tips:

1. Ensure a fair balance among team members

Since many employees make work contributions based on what they think they will receive, you can benefit your entire team by setting standards for fairness and equality. Make sure all team members receive the same compensation for equal amounts of work. You can also hold regular team meetings to guarantee everyone feels valued for their efforts.

2. Make sure you offer comparable compensation

Your team members may make different comparisons for inside and outside of the workplace. If an employee sees that they are receiving similar outcomes to others in their field with the same amount of experience, they will be more likely to stay satisfied in their position. When setting compensation standards, consider researching external positions for information about salary, benefits and incentives. Try to use like items so employees feel more comfortable with their roles. 

3. Know what your team values

Your team members will likely place different values on certain inputs and outcomes. Some may put a higher value on education, skills and training, while others may feel that their time and effort should receive a greater reward. When you show your team you appreciate their contributions fairly, you can help them stay motivated and happy in the workplace. It may be helpful to ask individual members what motivates them to form an actionable plan.