What is Equity Theory?

Pursuant to Equity theory, individuals are motivated by being treated fairly. Perceptions of fairness is generally a result of social comparison. That is, we compare our efforts (inputs) and the results of our effort (outputs) with the efforts and results of others (referents). Each of these is defined below.

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• Inputs - This includes any contribution that an individual makes toward an organized activity. This can include specialized knowledge, experience, tenure at the organization, number of hours, forgone opportunities, task prioritization, etc.
• Outputs - These are the rewards received as a result of the input. This can include compensation, title, recognition, autonomy, etc.
• Referent - The referent may be a specific person or a category of people. The important point is that the referent is comparable to the individual employees situation - such as those with similar positions, titles, roles, etc.

It is important to understand that the perceptions regarding inputs and outputs are subjective. They may be based in reality or a result of misunderstanding or bias. 

If we believe that our ratio of input to output does not align with or equal the input to output ratio of others, then it is not fair. Perceptions of inequity drive actions to reduce inequity. 

Individual Reactions

The Equity Theory identifies numerous potential reactions to the perceived inequity.

• Distort Perceptions - Look at the situation differently to justify the inequity in the input/output ratio.
• Increase Inputs - This could mean working harder, gaining more skills, etc.
• Reduce Inputs - This could mean working less or reducing the quality of the work.
• Increasing Outputs - This can include negotiating more compensation, responsibility, title, recognition, autonomy, etc.
• Change Referent - This involves changing to whom you compare yourself.
• Leave the Situation - This generally means quitting the job.
• Seek Legal Action - Pursue a legal action for an identified form of discrimination based upon being in a protected class of individuals.

An interesting aspect of equity theory is that the same reactions are not generally present when an individual feels that they are over-rewarded (more output) than is otherwise deserved or warranted based upon the input. In summary, people just do not react negatively to being overcompensated.