Equity Theory

What is Equity Theory?

According to Carrell and Dittrich (1978), when employees perceive unfairness, they will try to address it by either mentally reinterpreting their efforts or rewards (known as “cognitive distortion”), actively changing their contributions or outcomes, or leaving the organization altogether.

In the context of business, equity theory is part of organizational justice and focuses on workplace motivation driven by fairness. Employees assess fairness by comparing the effort they put into their job (inputs) with the rewards they receive (outputs) and then comparing their ratio to that of their peers. Inputs can include factors like effort, loyalty, skills, performance, education, and trust in leadership, while outputs typically refer to compensation, benefits, and recognition. If employees perceive an imbalance in this input-output ratio, they may feel dissatisfied, demotivated, or even disengaged from their work.

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