Equity Theory

What is the Equity Theory?

Equity theory is a motivation theory that says that employee motivation is mostly determined by their sense of fairness at work. Employees keep a mental record of their job's inputs and outputs, and then utilise that record to compare their inputs and outputs to those of others. Effort, performance, skills, education, and experience are examples of inputs, whereas compensation, benefits, and promotions are examples of results. Employees may feel demotivated and unsatisfied with their jobs if they believe their input-to-output ratio is not equal to that of their peers.

What are the primary components of the equity theory?


Inputs are the actions taken by an employee to assist an organisation in achieving a goal. Time, loyalty, effort, tolerance, flexibility, personal sacrifice, skill, and trust in superiors a few of the 'inputs,' or what an employee offers to an organisation.  


Outputs are the outcomes that an employee gains as a result of assisting a company in achieving a goal. In addition to criteria like compensation, job security, flexible working hours and employee perks, outcomes include intangibles like appreciation, sense of achievement and recognition.

Adam’s Equity Theory

The Equity theory of motivation, established by behavioural psychologist John Stacey Adams in the early 1960s, is focused with defining and assessing employee relational satisfaction. Employees should aim to strike a balance between what they provide to an organisation and what they receive, according to Adams, and base their satisfaction with their own balance on colleagues' opinions of the same balance.

Employee perception and equity theory of motivation

Equity equals the outputs of a person divided by the same person’s inputs. Employees who perceive the inequity theory will change their inputs to restore balance. According to Adam's Equity Theory of motivation, employees don't merely grasp equality in isolation, instead, they look around and compare themselves to others.  

An employee will become demotivated if their outputs are lower than their inputs in comparison to others. Similarly, if an employee’s outputs are higher than those doing the same work, they may find the need to fix their distorting inputs or work upon altering inputs. Essentially, employees who perceive the inequity theory will strive to restore the balance.  

‍What factors affect the equity theory?

These factors collectively contribute to the understanding and application of the equity theory in the context of workplace motivation and behavior.

1. Inputs

Factors such as an employee's time, effort, skills, experience, and dedication play a significant role in shaping perceptions of fairness in the workplace.

2. Outcomes

The rewards or benefits received by an employee, including salary, recognition, promotions, and perks, can influence their perception of equity.

3. Comparison

Employees tend to compare their input-to-outcome ratio with that of their peers, affecting how they perceive fairness in the work environment.

4. Perceived equity or inequity

The belief that one is either under-rewarded (inequity) or adequately rewarded (equity) compared to others can significantly impact motivation and job satisfaction.

5. Cognitive processes

How employees perceive and process information about their own contributions and rewards relative to others plays a role in determining their sense of equity.

6. Behavioral responses

The actions taken by employees in response to perceived inequity, such as altering work effort or seeking redress, can affect the dynamics of the equity theory.

7. Job satisfaction

An employee's overall contentment with their job can influence how they evaluate the fairness of their inputs and outcomes.

8. Organizational justice

Employees' perceptions of fairness in organizational procedures, outcomes, and interpersonal relationships can also impact their assessment of equity.

9. Cultural influences

Cultural norms and values can shape what is perceived as fair and equitable, influencing how individuals apply and interpret the equity theory.

10. Personal values

An individual's intrinsic values and beliefs can determine the weight they place on certain inputs and outcomes, influencing their perception of equity.

What are the four propositions of Equity theory?

A referent group is a group of people that an employee utilises to make comparisons. People compare themselves to four referent groups in Adam's Equity Theory of Motivation:  

  • Self-inside: a person's experience within their current company.  
  • Outside of the self: the individual's interactions with other organisations.  
  • Others-on-the-inside: those in the individual's current workplace.
  • Others-outside: people who are not affiliated with a specific group.  

When a programmer compares their pay to that of other programmers in the same company, the referent group is the others-inside. The referent group is others-outside if they compare themselves to programmers they know socially. The referent group is self-outside if they compare themselves to what they earned in their former work.

What are the applications of the equity theory?

Industrial psychologists have commonly used theory of equity to describe the relationship between an employee's motivation and his or her sense of equitable or inequitable treatment in the workplace.

Equity theory assumptions applied to business

The three main assumptions underlying most theory of equity applications in business can be described as follows:  

Employees expect a fair return for the time and effort they put into their professions, a concept known as the "equity norm."  

After comparing their inputs and outcomes to those of their peers, employees evaluate what their fair return should be. "Social comparison" is the term for this concept. ]

Employees who believe they are in an inequitable environment will try to lessen the imbalance by distorting inputs and/or outcomes un their minds ("cognitive distortion"), actively modifying inputs and/or outputs, or leaving the company. (Carrell and Dittrich, 1978)  

Cognitive distortion

Employees who feel distressed may (unconsciously) modify their impressions of the relative importance of their contributions by hanging their actual contributions. This is accomplished by a cognitive distortion mechanism.  They can pursue justice in two separate ways by using cognitive distortion. They can choose from the following options:  

Inflate their sense of contribution to the organisation

Deflate their sense of contribution to the organisation.  

While inflating what employees think they are worth and deflating what employees think others are worth can help settle a sense of unfairness. When they inevitably move into a new peer group, the cognitive distortions they construct are often shattered. Employees will have to re-evaluate themselves in a new community, and they might learn some unpleasant realities.

What are the implications of the equity theory for business managers?

For business managers, equity theory has various implications:  

  • Employees measure the totals of their inputs and outputs. This means that a working mother may be willing to accept lower pay in exchange for more flexible working hours.
  • Inputs and results are assigned personal values by different personnel. As a result, two employees with the same level of experience and qualifications performing the same job for the same compensation may have quite different views on the fairness of the contract.
  • Employees are allowed to adapt for purchasing power and market conditions in their respective areas. As a result, a teacher in Alberta may accept lower pay than a colleague in Toronto if their cost of living differs, while a teacher in a distant African hamlet may accept a whole different pay structure.
  • Even though it might be acceptable for more senior employees to be paid more, there are limits to the balance of the scales of equity, and excessive executive pay can be demotivating to employees.
  • Employee perception of their own and others' inputs and outcomes may be inaccurate, and perceptions must be handled successfully.
  • Employees who believe they are overpaid may put forth more effort. He can, however, change the values he assigns to his own personal inputs. It's possible that he internalises a sense of superiority and, as a result, reduces his efforts.

Are there any criticisms of the equity theory?

While the equity theory provides valuable insights into workplace motivation, these limitations indicate that a more nuanced and multifaceted approach may be necessary to fully understand and enhance employee motivation and satisfaction.

1. Overemphasis on comparison

The equity theory primarily focuses on the comparative aspect of fairness, sometimes overlooking individual needs and intrinsic motivations.

2. Subjectivity in perceptions

People have diverse perspectives on what is deemed fair, leading to varying, and sometimes inaccurate, evaluations of their own and others' contributions and rewards.

3. Cultural differences

Equity theory may not be universally applicable, as different cultures perceive fairness and equity differently. For instance, collectivist cultures may prioritize group harmony over individual equity.

4. Limited application

While the theory suggests that perceived inequity can lead to demotivation, it doesn't provide clear guidelines on how organizations should rectify such imbalances.

5. Neglect of individual differences

The equity theory may not account for variations in individual preferences and tolerance for inequity, leading to a one-size-fits-all approach that may not be effective for everyone.

6. Lack of emphasis on context

The theory may not sufficiently consider the context in which work is performed, potentially underestimating the influence of the work environment and organizational culture on perceptions of equity.

7. Challenges in measuring inputs and outputs

Quantifying and comparing employees' contributions and rewards can be difficult, leading to potential inaccuracies and perceived injustices.

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