Summary:
Social Exchange Theory proposes that individuals engage in relationships based on a calculation of costs and benefits. People keep track of the goods or resources they exchange with others—whether these are tangible items, emotional support, or other forms of value—and then make judgments about whether the return they receive is worth the input they give. Essentially, individuals seek out relationships where the benefits they receive exceed the costs they incur, aiming for situations where the overall outcome is positive and rewarding. On the other hand, if they perceive the relationship as having a higher cost than the benefit, they may decide to end the relationship, as the overall outcome is seen as negative or unsatisfactory.
This dynamic is not limited to romantic relationships but can apply to many other aspects of life, including work relationships. For instance, employees often evaluate their relationship with their employer or manager through the lens of Social Exchange Theory. If the benefits—such as salary, job satisfaction, personal growth opportunities, and emotional well-being—outweigh the costs, like stress, long hours, or poor work conditions, employees are likely to remain in their jobs. However, if the costs become too high relative to the rewards, individuals may begin to seek alternatives.
One of the key aspects of Social Exchange Theory is the idea of alternatives. People will often remain in a less-than-ideal relationship or situation if they perceive that there are no better alternatives available to them. This explains why some individuals stay in unsatisfactory relationships, whether in a personal or professional context. If there is a lack of more rewarding options, they may opt to stay in the current relationship simply because they see no other viable choice, even if the costs are high. In a workplace scenario, an employee may tolerate a toxic work environment if they perceive that other job opportunities are scarce or do not offer better benefits. Similarly, in personal relationships, someone may stay in an unhappy partnership if they believe that the potential for finding someone else or improving their situation is unlikely.
Overall, Social Exchange Theory offers a framework for understanding how individuals weigh the pros and cons of relationships and why they might stay in or leave them based on a complex assessment of the rewards, costs, and available alternatives. This theory highlights that our social and professional decisions are often made not just based on emotions or ideals, but through a rational assessment of what we gain or lose in these interactions.
An Application:
One clear application of Social Exchange Theory can be seen in employee retention and workplace dynamics. In many organizations, understanding why employees stay in or leave their jobs is critical to maintaining a productive and satisfied workforce. According to Social Exchange Theory, employees evaluate the costs and benefits of their relationships with their employers, which includes factors such as compensation, work environment, career growth opportunities, recognition, and work-life balance. When employees perceive that the benefits they receive from their job outweigh the costs—such as long working hours, high stress, or difficult colleagues—they are more likely to stay.
However, if employees begin to feel that the costs outweigh the rewards, they might start seeking alternative job opportunities, which could lead to higher turnover rates. For example, an employee might tolerate a stressful work environment if they feel that the pay and benefits are worth it. But if a competitor offers a better salary or more flexible working conditions, the employee might decide to leave, as the alternative is perceived as more rewarding. Alternatively, if the employee perceives that there are no viable job alternatives that offer better compensation or conditions, they might stay in the unsatisfactory job, even though they feel unhappy.
In organisations, understanding this concept can help managers and HR professionals create work environments that are more likely to retain employees. By ensuring that the benefits—such as fair pay, career development opportunities, a positive work culture, and recognition—are perceived as outweighing the costs of the job, employers can increase employee satisfaction and reduce turnover. Additionally, providing clear paths for growth, offering competitive benefits, and ensuring a healthy work-life balance can all help to maintain the relationship with employees, making it more rewarding overall.
Moreover, Social Exchange Theory can also explain why some employees stay with toxic managers or in dysfunctional team environments. They may feel that despite the interpersonal or organizational challenges, there are no better alternatives available, and the costs of seeking a new job or changing departments seem too high. This underscores the importance of offering employees not just competitive financial incentives but also a positive and supportive workplace culture, where the benefits outweigh the costs of staying.
This application highlights how Social Exchange Theory can be used to inform strategies that improve employee retention, satisfaction, and overall organizational success.
Can you apply Social Exchange Theory to find some ways to help organisations ensure low employee turnover and high retention?
Key References
Thibaut, J. W., & Kelley, H. H. (1959). The Social Psychology of Groups. Wiley.
This book by Thibaut and Kelley is a foundational text for Social Exchange Theory. It emphasizes how individuals in relationships—whether personal or professional—make decisions by evaluating the potential outcomes, often with a focus on maximizing rewards while minimizing costs. This work laid the groundwork for many of the applications of Social Exchange Theory, including in areas such as interpersonal relationships, workplace dynamics, and social interactions in general.
Blau, P. M. (1964). Exchange and Power in Social Life. Wiley.
This seminal work by Peter Blau introduced Social Exchange Theory in the context of social relationships. It provides a foundational understanding of how individuals evaluate the costs and benefits of their interactions, a concept that has been widely applied to understand workplace behavior, employee satisfaction, and retention.
Cropanzano, R., & Mitchell, M. S. (2005). Social exchange theory: An interdisciplinary review. Journal of Management, 31(6), 874-900.
This review article offers an interdisciplinary perspective on Social Exchange Theory and its applications in organizational behavior, including how the theory explains employee relationships, motivation, and retention. It synthesizes research from various fields to illustrate how Social Exchange Theory helps explain workplace dynamics.
Homans, G. C. (1958). Social Behavior as Exchange. American Journal of Sociology, 63(6), 597-606.
George Homans is one of the founding figures of Social Exchange Theory. In this article, he discusses how individuals engage in social exchanges, evaluating the rewards and costs of interactions. The article provides a theoretical basis for understanding how these principles apply to workplace settings and employee behavior.
