Equity theory says that employee perceive what they get from a job situation (outcomes) in relation to what they put into it ( inputs) and then compare their input outcome ratio with the input outcome ratios of relevant others. This relationship is shown in Exhibit. If worker perceive their ratio to be equal to those of the relevant others with whom they compare themselves a state of equity exists. They perceive that their situation is fair – that justice prevails. If the ratios are unequal inequity exits: that is workers view themselves as under rewarded or over rewarded. When inequities occur, employees attempt to correct them.
Referent: Inequity theory the other persons the systems or the personal experiences against which individuals compare themselves.
The referent with which employees choose to compare themselves is an important variable in equity theory. The three referent categories have been classified as other system and self. The other category includes individuals with similar jobs in the same organization and friends, neighbors or professional associates. On the basis of information through word of mouth newspapers and magazine articles on issues such as executive salaries or a recent union contract, employees compare their pay with that of others.
The system category considers organizational pay policies and procedures and the administration of that system. It considers organization wide pay policies both implied and explicit. Patterns by the organization in terms of allocation of pay are major determinants in this category
The self category refers to input outcome ratios that are unique to the individual. It reflects personal experiences and contacts. This category is influenced by criteria such as previous jobs of family commitments.
The choice of a particular set of referents is related to the information available about referents as well as to the perceived relevance. On the basis of equity theory when employees perceive an inequity they might (1) distort either their own or others inputs or outcomes (2) behave so as to induce others to change their inputs or outcomes (3) behave so as to change their own inputs or outcomes (4) choose a different comparison referent and / or (5) quit the job.
Equity theory recognizes that individuals are concerned not only with the absolute rewards they receive for their efforts but also with the relationship of those rewards to what other receive. They make judgment concerning the relationship between their inputs and outcomes and the inputs and outcomes of others. On the basis pf one’s inputs, such as effort, experience, education, and competence one compares outcomes such as salary levels raises recognition and other factors. When people perceive an imbalance in their input outcome ratio relative to those of others, they experience tension. This tension provides the basis for motivation as people strive for what they perceive to be equity and fairness.
The theory establishes four propositions relating to inequitable pay, listed in, Exhibit that has generally been proven to be correct. Research consistently confirms the equity thesis: Employee motivation is influenced significantly by relative rewards as well as by absolute rewards. Whenever employees perceive inequity, they will act to correct the situation. The result might be lower or higher productivity improved or reduced quality of output, increased absenteeism or voluntary resignation.
However, from the preceding discussion, we should not conclude that equity theory is without problems. They theory leaves some key issues unclear. For instance how do employees define inputs and outcomes? How do they combine and weigh their inputs and outcomes to arrive at totals? When and how do the factors change over time? Regardless of this problem equity theory has an impressive amount of research support and offers us some important insights into employer motivation.