Social Exchange Theory and its Usage in Human Resource Management

Blogpost No. 6: By Tilak Karunaratne (E201471)

 

Introduction

Social Exchange Theory is a psychological and sociological concept that can be applied in various fields including in Human Resource Management (HRM).  It was formed on the idea that the people make decisions and engage in relationships based on a rational assessment of costs and benefits, consciously or unconsciously.  In the context of HRM, Social Exchange Theory provides insights into how employees and employers interact, compare the alternatives and make decisions about their employment relationships.

In HRM, Social Exchange Theory suggests that employees and employers engage in a mutually beneficial exchange. There, the employees offer their skills, time, and effort while employers provide work environment, benefits and compensation.  This exchange is not just limited to financial aspects but also includes emotional and psychological components, such as respect, job satisfaction and recognition.

More Details on Social Exchange Theory

Key principles of Social Exchange Theory in HRM include:

Reciprocity: This refers to the principle that when one party provides something of value to another, the recipient feels an obligation to reciprocate in some way.  In HRM, this can manifest as employees working harder or being more committed when they perceive that their employer is investing in their development, well-being, or career growth.

Perceived Fairness: Employees evaluate their employment relationship based on perceived fairness.  If they believe they are receiving fair compensation and treatment for their efforts, they are more likely to be motivated and committed.  Unfair treatment can lead to negative feelings and reduced engagement.

Costs and Benefits Analysis: Both the employees and employers continuously assess the costs and benefits of their relationship. Employees weigh factors like salary, benefits, job security, and work-life balance against their contributions. Employers consider factors like productivity, loyalty, turnover costs, and the impact of employee satisfaction on the overall work environment.

 Picture Courtesy: Internet 

Investment and Commitment: As employees perceive that their employer is investing in their development or well-being, they are more likely to commit to the organization for the long term. This commitment can lead to increased job satisfaction, reduced turnover, and improved overall performance.

Trust and Loyalty: Over time, if both parties consistently meet their obligations and provide positive outcomes, trust and loyalty can develop. Trust is crucial for a healthy and productive work environment.

Exchange Relationships vs Communal Relationships: In exchange relationships, parties focus more on tangible rewards and outcomes. In communal relationships, the emphasis is on mutual care and support. Social Exchange Theory suggests that a combination of both types of relationships exists in HRM, where employees expect fair compensation for their work but also seek a sense of belonging and positive relationships with colleagues and supervisors.

 

Scholars’ contributions to Social Exchange Theory

Several scholars have helped developing and refining the Social Exchange Theory.  These range from applications of social exchange theory in a specific context to expanding on the foundation of the theory.

As reported by Nickerson (2023), the social behavior involves social exchanges where people are motivated by obtaining something of value (reward) in exchange for forfeiting (cost) something else of value (Thibault & Kelly, 1959).  Like in economic exchanges, people look for profit in social exchanges also, so they are disturbed when there is no profit in an exchange or when others gained more at the costs incurred by a person (Redmond, 2015).

Thibaut and Kelley assume that people try to maximize the rewards they obtain from a relationship and minimize the costs (the minimax principle).  Thus, people will pursue relationships where rewards are greater than cost (when having net profit) and abandon those where costs are greater than profit (when incurring net loss). These profits can be measured in the short term or cumulatively. The value of costs and rewards are highly subjective.

Social exchange theory addresses three questions:

• How people decide on how much they are willing to give in exchange for a particular reward,
• What reasons influence people to pursue or terminate relationships, and
• Why (and whether) people feel resented when they feel they have put more effort into sustaining a relationship than their partner (Redmond, 2015).

In Homan’s (1958) paper on Social Behavior as Exchange, Homans contrasted the actions and exchanges of individuals to the actions of institutions.  He believed that individual behaviors and exchanges could affect the actions of institutions.

Blau’s (2017) Exchange and Power in Social Life drew on Homan’s focus on groups and institutions to lay the theoretical foundation for social exchange theory.

Unlike Homan, who emphasized psychology as the foundation of human decision-making, Blau’s vision of social behavior paralleled microeconomics. He labeled this vision with Homan’s term “social exchange theory” (Cook and Emerson, 1987).

 

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According to Redmond (2015), there are five guiding principles of Social Exchange Theory.

• Principle 1: Social behavior can be explained in terms of costs, rewards, and exchanges, like in Economics.
• Principle 2: People seek to maximize rewards and minimize costs to have the maximum profit: This reflects that people are generally motivated by their own self-interest, regardless of the decision.
• A relationship that at one time seemed to be a high reward or low cost may shift to one with increasing costs and low rewards, causing that person to return to a more rewarding relationship.
• Principle 3: Social interaction involves two parties, each exchanging a reward needed by the other person: in order to get rewards, people must exchange something better (Burns, 1973). This creates interdependent relationships.
• Principle 4: Social exchange theory can be used to explain the development and management of interpersonal relationships: the economic principles underlying social exchange theory must be adapted so that they can apply sociologically. This has led sociologists such as Altman and Taylor (1973) to create social penetration theory to describe relational development.
• Principle 5: Social exchanges affect the relationships among members of groups and organizations.

For decades, researchers such as Blau (2017) have discussed how the need for advice and assistance leads to exchanges among group members.

Thibault and Kelley (1959) also identified a number of different stages of a relationship:

Sampling: Partners consider the possible costs and benefits in the new relationship through direct or indirect interactions and compare it to other relationships available.

Bargaining: Partners exchange costs and benefits; they negotiate and identify what is the most profitable.

Commitment: The relationship is stable and maintained by a predictable exchange of rewards.

Institutionalization: Partners have established norms in terms of costs and benefits and cement their relationship.

It was observed that - in our work places - many employers and the managers apply the Social Exchange theory unknowingly.  It can also safely be assumed that at least some of those who knew the theory may have applied it earning more effective results. 

Conclusion

Social Exchange Theory provides valuable insights into the dynamics of employee-employer relationships, in the context of HRM.  By understanding the principles of reciprocity, perceived fairness, cost-benefit analysis, investment, commitment, trust, and loyalty, HR professionals can design strategies to enhance employee satisfaction, engagement, and long-term retention.  By doing so, the company can benefit by improving its productivity / profits through employees’ retention and job satisfaction.

 

References

Argyle, M., & Crossland, J. (1987). The dimensions of positive emotions. British Journal of Social Psychology, 26(2), 127-137.

Altman, I., & Taylor, D. A. (1973). Social penetration: The development of interpersonal relationships: Holt, Rinehart & Winston.

Beebe, S. A., & Masterson, J. T. (2003). Communicating in small groups. Boston, MA.

Blau, P. M. (2017). Exchange and power in social life: Routledge.

Emerson, R (1976). Social Exchange Theory.  Annual Review of Sociology, Vol.2 (1976), 335-362

Nickerson, C; Social Exchange Theory Of Relationships: Examples & More; Simply Psychology; Apr.10 2023

https://www.simplypsychology.org/what-is-social-exchange-theory.html#:~:text=According%20to%20social%20exchange%20theory,the%20short%20term%20or%20cumulatively.