The inducement-contribution theory suggests that an employee will continue or increase their membership (participation motivation) and performance-oriented behavior (performance motivation) in an organization if and as long as the inducement benefit (all material and immaterial rewards the person receives from the company) exceeds or matches the contribution benefit (costs for contributions or the maximum incentive value the person could expect from a different or less intensive role).
According to this theory, employees will only continue their participation in the company as long as the inducements offered are equal to or greater than the contributions required. The contribution benefit determines the minimum level of incentives that must be offered. Key considerations include: (1) The subjective perception determines the benefit, and (2) The anticipated inducement-contribution ratio—when alternative offers are present—can alter the effects of current work situations, whether negative or positive.
For companies, this theory highlights the need to balance the expected individual performance contributions with an incentive offer that aligns with employee expectations and stands out from competing businesses. By doing so, companies can motivate employees to continue contributing.
In an organization, the contributions of employees are transformed into incentives, which then flow back to the participants. A company is in equilibrium when the contributions are sufficient to offer incentives in such a way that employees continue their contribution efforts. The inducement-contribution theory simplifies the process by assuming that individuals can summarize inducements and contributions into a single utility measure, which becomes the basis for their behavior.
