Equity theory establishes that an optimal workplace relationship exists when an employee's inputs into the organization result in fair and valuable rewards or outputs. Equity theory was developed in 1963 by workplace and behavioral psychologist John Stacey Adams.
The inputs Adams noted that a typical employee provides include hard work, skills or abilities, passion for the job and other intangible qualities. While compensation is normally a major output considered in an equitable relationship, employees also look at benefits, praise and intangible appreciation from leaders.
The premise of the equity theory is that employee motivation is contingent on a balance between inputs and outputs. If a worker feels like he is putting more into the job than he is receiving in compensation, praise and rewards, he loses motivation. Eventually, employee input may fall. Workers may also become disgruntled and angry at the organization for taking advantage of them and not treating them fairly.
Other examples of personal qualities employees bring to an employer are loyalty and commitment, adaptability and flexibility, trustworthiness, dependability, tolerance and personal sacrifice. Some companies reward loyalty, for instance, with bonuses for achieving "years of service" milestones. Other possible outputs the employer can provide are growth and advancement opportunities, a quality reputation, stimulating work and a sense of accomplishment.