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Equity Theory

Equity theory is the term used to describe the call for a fair balance between an employee's input and output. In other words, an employee's hard work, skill level, and overall contribution to the SMB should be reflected in their salary, benefits, and appreciation within the company. According to the equity theory, reaching this balance guarantees a strong and effective relationship between employee and employer and helps keep employee morale high.

What Small and Midsize Businesses Need to Know About Equity Theory

If an SMB's employees think that their inputs do not line up with their outputs—in other words, if they're putting in more than they're getting out—they may become unmotivated and unsatisfied with their job. This can be especially true if an employee at a small to midsize business feels like their co-workers are getting greater equity than they are.

Related terms