The Equity Theory in Business

 

The equity theory is a part of business and personal life that is rarely discussed considering its impact in our everyday lives. The equity theory discusses how people view and value their social exchanges in life. This plays a large role in our everyday decisions in work and play. This article will discuss the details of the equity theory in business; it will also elaborate on judging the view of equity and inequity and means of dealing with inequity in business scenarios.

The equity theory is very interesting, and it discusses how a person views their social exchanges. Social exchanges are viewed by people as a give and take. They are also considered in relation to other's exchanges and preconceived social exchange standards. Social exchanges consist of a balance between two parts.

The equity theory suggests that equity is a social relationship that has two parts. These parts are known as input and outcome. Input is what an employee brings to the table such as background knowledge and experience, skills, abilities, and effort. Outcome is what the employee gains from their input; this can be measured in means of compensation, praise, and unity amongst employees. Outcomes are relevant to the individual, and they can vary based on the individual's values. Input and outcome work together to provide a person with a feeling of equity or inequity.

The equity theory discusses how employees compare their input to outcome ratio to the ratios of others or other standards. This is how fairness is determined. Equity exists in this social exchange when an employee feels his input is proper relation to the outcome. Inequity is caused by an imbalance in the input to outcome ratio. Equity and inequity is determined by comparing other's social exchanges and standard ideals of social exchange ratios.

If a person determines inequity exists then they can do several things to restore balance and make the exchange of input and outcome fair. They can choose to increase output by asking for a raise or other form of compensation from their boss. They can also choose to decrease input so that the ratio of input to outcome becomes more equal. They can also choose to alter their perception of their input or outcome which would change the state of equity. Finding a new position that supports their belief of equity is an option for restoring equity.

Equity and inequity exist in all business environments. This theory discusses the way employees relate to the exchanges they make. Equity is important to maintain employee satisfaction, and it should be considered by employees and managers of businesses.