Adams’ Equity Theory

Everyone wants to be treated fairly. No matter what avenue of life is in question, fair treatment is something that everyone appreciates – and demands. For a business owner or manager, this is a particularly important lesson to learn with regard to employees. If you aren’t treating your employees fairly, they are not going to be happy. That unhappiness can manifest itself in a number of ways. For one thing, you might not get their best effort on a daily basis. Also, you might struggle with high turnover rates as the good employees leave for better opportunities. If your organization is going to thrive into the future, fair treatment for all involved is essential.

It is this concept of fair treatment which is the basis for Adams’ Equity Theory. While this theory was developed more than 50 years ago, it remains very much relevant today. Every business owner or manager should have a clear understanding of the Equity Theory and how it can help to create a business structure which encourages employees to give their best effort day after day.

Inputs and Outputs

At the core of this theory is the idea that employee inputs and outputs need to match up as closely as possible. In other words, what an employee brings to the organization should be relatively equal to what that employee takes from the organization. We will get into more specifics on types of inputs and outputs later, but obviously the main output here is salary. In exchange for a salary, the employee is going to bring things like knowledge, experience, reliability, and much more. Should the inputs be worth more than the outputs, the employee is likely to be unhappy and problems will be sure to surface down the road.

What Is an Input?

In this case, an input is anything that an employee brings to an organization. There are potentially infinite examples of what kind of input can be provided by an employee, depending on the job at hand. To start with, you have the effort the employee puts in each day. They are giving a certain amount of their daily energy to the business, in return for whatever outputs are being offered. Effort can also be classified as hard work, and even commitment. No matter what you call it, the base level of effort offered by an employee is a notable piece of their overall input.

Another common input is skill or ability. For a skilled position – such as a job where the individual needs to be trained in a specific trade – the experience and knowledge they bring with them to the job is a valuable input. This input has notable value because it may not be easily replaced. If the employee has a relatively rare skill, that skill will be worth more to the company than a skill which is possessed by a large percentage of the work force.

Finally, one other input category to consider is the social skills and personal sacrifice offered by the employee to the organization. Is this individual willing to sacrifice themselves in some way – staying late, not getting the credit they deserve, etc. – in order to make the company better? If so, they are adding another input there as well.

What Is an Output?

It was mentioned earlier that the main output offered by an organization in exchange for an employee’s inputs is a salary. This is usually a set amount of money which will move from the company to the employee each month, but it may also be a commission-based compensation model. Whatever the case, it is certain that most employees consider this output first and foremost when weighing a job opportunity.

However, there are more outputs to take into consideration than just salary (and other financial benefits). For one thing, there is recognition within a specific field. For instance, if a company allows the individual to take much of the credit for what they accomplish, the recognition that comes from those accomplishments could lead to other job opportunities down the line. In this way, an employee could appreciate the way he or she is being given a chance to grow their reputation within a given field.

Another output which is important to consider is simply the sense of achievement that comes along with a job well done. If you present your employees with interesting and important challenges, they are likely to take pride in checking them off successfully. Some employees will be more rewarded by this point than others, but nearly everyone takes some degree of pride and ownership in their work.

Finding the Balance

The inherent challenge for any business owner or manager is the fact that many of these items don’t have clear financial values. For example, how much is someone’s hard work worth in terms of salary? Or, how much weight should be given to the fact that someone may get personal satisfaction for doing their job well? It is hard to balance out all of the various factors in order to come up with a compensation package that is fair to all involved.

In reality, finding equity for your employees is always going to be a moving target. This will always be something that you have to work at, and the job will never be done. Since different employees are going to bring different levels of effort and skill to the job, they will deserve different levels of compensation – and they will value different kinds of outputs in their own way. There is no one-size-fits-all approach here, so it will always be the job of the business owner or manager to play the game and come up with the right plan. To succeed on this point, it is important to keep Adams’ Equity Theory in mind. As long as you are trying to stay within a fair range when compensating your employees, the inputs and the outputs should be close enough to keep everyone happy.

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