Equity Theory

As per Carrell and Dittrich (1978), “employees who perceive inequity will seek to reduce it, either by distorting inputs and/or outcomes in their own minds (“cognitive distortion”), directly altering inputs and/or outcomes, or leaving the organization.”

In a business mindset, equity theory is part of organizational justice, it is the theory of motivation at work that is driven by a sense of fairness. Employees create a balanced mindset based on inputs they give to the organization and outputs they receive in return. They use this mindset to compare their inputs and outputs with others. Employees’ inputs may include effort, loyalty, performance, skills, education, trust in seniors, and experience and outcomes generally refer to compensation. If employees feel that the ratio of inputs and outputs is not balanced, they may feel demotivated and unhappy with their job.