Equity theory

It is perceived equitable rewards are a major input into employee satisfaction. Equity
Theory is based on the idea that individuals are motivated by fairness.
In simple terms, equity theory states that if an individual identifies an inequity between
themselves and a peer, they will adjust the work they do to make the situation fair in
their eyes. if there is fairness they will work harder and also get motivated.
we have 2 terms - input and out put -----
Inputs are defined as those things that an individual does in order to receive an
output.They are the contribution the individual makes to the organization.
Outputs (sometimes referred to as outcomes) are the result an individual receives as a
result of their inputs to the organization. Some of these benefits will be tangible, such
as salary, but others will be intangible, such as recognition
Equity is defined as an individual’s outputs divided by that same person’s inputs.
individual output/individual input = others output/ other input
Essentially, what we are saying is that individuals will always adjust their inputs so that
the equation is always in balance
Comparison of the inputs and outputs of the employee and comparison other are
similar to those judgments made by employees according to expectancy theory

how we compare : Referent Group

A referent group is simply a collection of people a person uses for the purposes of
comparison.
1. Self-inside: the individual’s experience within their current organization.
2. Self-outside: the individual’s experience with other organizations.
3. Others-inside: others within the individual’s current organization.
4. Others-outside: others outside of the individual organization.

you can even compare your job with a person who have another job

Methods of Restoring Equity:

1. alter input : increase or decrease
2. alter outcome with out impacting the input. this might be increasing salary, or
decreasing work hours..
 3. cognitively distort input or output : believing you deserve great because you have
more skill, knowledge... or believing that others are better than you
4. change the other comparison : compare yourself to someone less than you
5. ????
6. leave the organization

the key points

People measure the total of all inputs against the total of all outputs. This could
mean that a person with children may accept flexible working hours in return for
lower pay.
Unfortunately, an individual’s values will be used when they measure fairness. So
two identical employees on identical pay may each see the fairness of their
situation differently. Perceptions may also be different from one person to another.
The art of being a good manager is to manage these expectations and influence
values.
Although it is understandable that more senior staff earn significantly more, there
are limits, and excessive pay for senior people can be demotivating.
An employee who believes they are overcompensated may increase their effort.
Another thing for managers to be aware of is the options available to them for reducing
inequality:

Change an individual’s inputs or outputs.

Change the inputs or outputs of others
Change the perceptions of inputs and outputs