The Equity theory was proposed by a Behavioral Psychologist, John Stacey Adams. It states that:
‘The motivation of an individual is positively correlated to his perception of justice and fair treatment practiced by the management.
The employee seeks a balance between the amount of efforts he pours in (Input) and the kind of compensation he receives (Output).
The Individual compares this input-output balance with the other employees in the organization (known as ‘referents’)
Inputs: time, effort, loyalty, commitment, reliability, integrity, tolerance etc
Outcomes: pay, bonus, perks, benefits, praise, reputation, responsibility etc
– If the individual’s output to input ratio is lower than the partner’s ratio, he feels under-rewarded and demotivated. The phenomenon is called Equity Tension.
– When the Output-Input ratio is equal to the referents’ ratio, Perfect Equity is said to be developed and the employee feels motivated.
– If the employee’s ratio is greater than the referents’ ratio, the employee feels over-rewarded and again, Equity Tension is said to be developed.