Equity Theory in Managing Organizations

Equity theory seeks to explain relational fulfillment in terms of views of fair/unfair allocation of resources in interpersonal relationships. The notion is that individuals value just treatments, which leads them to be more motivated and to carry on the equality extended to them in the relationships with their colleagues and the organization.

Equity theory suggests that individuals who recognize themselves as either under-compensated or over-compensated will experience misery, and that this misery results to efforts to re-establish equity within the relationship. Equity is quantified by contrasting the ratios of efforts and benefits of every individual in the relationship. In organizational management, employees do not have to acquire equal benefits (such as acquiring equal amount salaries and allowances) or make equivalent contributions, provided that the ratio among benefits and efforts is equal (Bossu & Henrotte, 2012).

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In any situation, an employee seeks to feel that their efforts and task performance are compensated through their pay. If a worker feels poorly paid then it will lead to the worker feeling antagonistic towards the organization and maybe their co-workers, which could lead in the worker reduced performance at work (Young, 1994). The subtle variables also play a central responsibility in the sense of fairness. Simply the idea of gratitude for the task performance and the sheer act of thanking the worker will induce a feeling of approval, therefore aid the worker feel worthwhile, and extend better outcomes and increased job performance (Overhaus, 2002).

When persons find themselves engaging in unbalanced relationships, they turn out to be distressed. The more unbalanced the relationship, the greater distress person’s experience. The equity theory states that, the individual who acquires “too much” and the individual who acquires “too little” experience distress. The individual who obtains too much could feel remorse or shame whereas the person who obtains too little could feel irritated or humiliated.


Bossu, S., & Henrotte, P. (2012). An introduction to equity derivatives: Theory and practice. Chichester, West Sussex: Wiley.

Overhaus, M. (2002). Equity derivatives: Theory and applications. Hoboken, N.J: Wiley.

Young, H. P. (1994). Equity: In theory and practice. Princeton, N.J: Princeton University Press.

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