What’s is: Adam’s equity theory is a motivational theory by links employee motivation and satisfaction with fairness for what is received from the company. Therefore, employees will naturally compare what they give to the company with what they receive.
On the one side, employees give their efforts, knowledge, skills, and loyalty. On the other side, the company may offer employees salaries, bonuses, promotions, fringe benefits, and autonomy. According to this theory, employees are satisfied and motivated if what they receive from the company is proportional to what they give.
Why is Adam’s theory of equity important?
Adam’s theory provides important insights into human resource management. Unlike Taylor’s theory, Adam’s equity theory accommodates a comprehensive approach to explaining employee satisfaction and motivation. While Taylor uses the money factor as a motivational driver, Adam also uses other factors such as recognition, challenge, and job security.
This theory emphasizes equity to be an important factor. Although it offers several human resources programs, it does not always lead to high satisfaction and motivation. For example, salaries and benefits often do not motivate employees. Likewise, promotion programs, job enrichment, and job rotation do not make employees satisfied and more productive. Dissatisfaction arises because the programs are not commensurate with what employees have given or sacrificed.
In other words, satisfying the various needs in Maslow’s hierarchy will not always lead to motivation. The reason is employees are more concerned with equity. Therefore, what they receive from the company should be proportional to what they give. So, whatever program the company designs won’t motivate them if it’s not fair enough.
How does Adam’s Equity theory work?
Employees sacrifice their time, energy, and effort for the company. As a result, they receive salaries and benefits to satisfy their basic needs as compensation. In addition, the company may also offer programs such as promotion, empowerment, job enrichment, and job rotation to meet their psychological needs.
Adam’s equity theory then relates the two factors: what employees give and what they receive. What they receive represents the “output” of what they provide to the company (“input”). So then, this theory introduces equity as another factor to explain motivation and job satisfaction.
Equity insists that the output must be proportional to the input. Therefore, whatever the motivation program launched by the company, if it is not proportional to the input given to the company, the employees will not be motivated. This is why companies with various programs such as salary, benefits, promotions, and job rotation do not always keep their employees motivated and more productive.
Then, employees will also instinctively compare what they receive with their colleagues. If they give more or the same but receive less than their coworkers, they are disappointed. As a result, they perceive the company as unfair and ultimately demotivate them. In other words, we can say equity is a relative concept.
Long story short, Adam’s theory of equity asserts a fair balance between inputs and outputs. Therefore, it is important to achieve strong and productive relationships with employees. As a result, employees are satisfied and motivated.
Arguably, this theory is similar to the cost-benefit concept for analyzing the feasibility of a project. Benefits represent outputs or rewards received by employees. Meanwhile, costs represent the inputs they provide to the company. And, the project is feasible if the total benefits exceed the total costs. In other words, employees are satisfied when they get more than they give.
Employees provide capital to the company. They represent human capital, whose knowledge, abilities, and skills provide economic benefits for the company.
Employees provide input to the company. It represents what they provide to the company, which could include:
- Interpersonal skills
The above factors have a cost. Take time as an example. Your employees spend time at work. If they spend more time in the office, less time for personal purposes, such as family.
Often, employees spend more than normal hours a day. They have to get some work done before it becomes piled up. In fact, your company pays them based on normal hours worked. Indeed, some offer overtime pay. But, often, employees feel it is not enough.
Your employees must commute every day and try to get in on time. But, sometimes, they have to leave for work early to avoid traffic jams. Then, arriving at the office, they must be ready to do their daily work.
Employees develop skills to do tasks and work following company expectations. Often, they spend money to develop it, such as through outside training provided by the company.
For example, they use their free time to learn skills online, such as Microsoft Excel. Such training may not be included in the company program.
As employees become more skilled, they can produce more products faster. Thus, your company gets the benefits, and the employees bear the costs such as money, time, and energy.
Employee knowledge is a valuable asset. With it, the company operates the business and develops innovation.
And acquiring knowledge is not free. Employees spend a lot of money on education before applying for jobs. Then, they sharpen their horizons through training either paid by the office or from personal pockets.
When employees are more experienced, they are more skilled at the task. It contributes to business productivity and efficiency. Finally, your company gets more products at a lower cost.
These skills contribute to synergies within the company. A positive work environment is important to support productivity. In addition, the culture formed by employees can be an intangible asset, which can contribute to the company’s core competencies, as the resource-based view model suggests.
Your company can save costs when your employees are loyal. For example, you don’t have to spend money to recruit and train new employees. In addition, loyalty is necessary to maintain the morale of existing employees.
On the other hand, when turnover is high, your company will have to spend a lot of money recruiting and training new employees. They may also not be as direct as your former employee. In addition, high turnover can reduce the morale of existing employees, for example, because they have to do the work left by your former employee before the new employee becomes effective.
The output represents what employees receive from the company. It can have monetary and non-monetary dimensions. Some are useful for fulfilling their basic needs. Others are important for meeting their psychological needs. Some examples are:
- Salary or wages
- Share ownership program
- Achievement recognition
- Fringe benefits
Salary or wages
Salary represents monetary compensation, usually paid monthly, independent of the output produced or the total hours worked. Meanwhile, wages are paid based on the output produced or total hours worked.
Salaries and wages are important to meet basic needs. In Maslow’s theory, it satisfies a physiological need. With it, employees can buy daily necessities such as food and drinks.
Bonuses are extra money paid in addition to the basic salary. Like salary, bonuses also meet physiological needs.
Companies may award them based on individual or company performance. For example, your company provides bonuses for employees who perform well for a year.
In other cases, you give employees bonuses because the company exceeds the targeted profit. Different from the first, in this case, all employees receive bonuses.
Stock ownership program
This program includes the Employee Stock Option Plan (MSOP) and the Management Stock Option Plan (MSOP). This program provides opportunities for employees and management to become shareholders in the companies where they work. It aims to boost their spirits to perform better. That way, the company’s performance continues to excel, and its share price continues to rise, which in turn increases their wealth.
Employees are eager to pursue achievement. They need to be recognized and respected by others – Maslow called it esteem needs.
One way to satisfy this need is to give appreciation. For example, a formal appreciation by a director in front of coworkers can make an employee proud. While it may not involve monetary compensation, he may be eager to maintain performance.
In other cases, the company may hold a special annual event to reward exemplary employees. It doesn’t just motivate awardees. But, it also encourages other employees to improve themselves and achieve superior performance, hoping to be rewarded next year.
Developing a clear career path and providing promotion programs are other ways to reward employees. It made their future clearer. They know what to achieve with their current career. That way, they are eager to give their best to the company, hoping to appoint them to a higher position.
Some companies provide non-cash rewards such as fringe benefits to their employees. That could be insurance, gym facilities, retirement schemes, and educational assistance.
Providing fringe benefits is important to increase employee morale and motivate employees to work well. They feel the company values and cares for them, which in turn encourages job satisfaction and loyalty.
Some employees like a challenge. So, when the company assigns a different task, they perceive it as not a problem. Instead, they see it as an opportunity for self-actualization.
With new challenges, employees develop themselves by honing their abilities and skills. They can also train themselves with new skills, which are important for their career advancement.
And companies can satisfy such needs through programs such as job enlargement, job enrichment, and job rotation.
Autonomy can make employees satisfied. Although it does not involve monetary gain, it is important to encourage intrinsic motivation.
For example, suppose your company delegates some responsibility for decision making. Through it, employees have control over their work. So, they can be more flexible in organizing and carrying out their work.
What to read next
- Motivation: Why is it important? Theory and Types
- Why Are Well-Motivated Employees Important To Business?
- Intrinsic and Extrinsic Motivation: Examples and Differences
- Taylor’s Theory of Motivation: How it Works, Principles and Criticism
- Maslow’s Hierarchy of Needs: Importance, Order of Needs and Criticism
- McClelland’s Theory of Needs: Types and How to Satisfy
- Herzberg’s Theory of Motivation: Examples and Explanations
- McGregor’s Theory X and Theory Y: Categories, Characteristics, and Implications
- Adam’s Equity Theory: How It Works and A Brief Explanation
- Pink’s Theory of Motivation: Elements and A Brief Explanation