Equity theory

We tend to compare ourselves with others. If - as a new graduate - we had been given a job offer of $150k per annum, we would more than likely say 'Yes!' and be "ready to tackle whatever needed to be done" (Robbins & Coulter, 2005, p. 403). We are likely to also be highly satisfied with the remuneration. But what if we found out soon after starting that another graduate, of a similar age, qualifications, results  and experience was earning $200k? Even though we are on a very slick salary, we would be pretty brassed off to be earning less than our colleague. The burning irritant for us would be that the "relative rewards and what [we] believe is fair—what is equitable" does not necessarily align to what we are experiencing (p. 403). 

This theory was the creation of John Stacey Adams, initially for use in industrial psychology, to explain our perception of equality and inequality in our work inputs versus our outputs (Miner, 2005; Robbins & Coulter, 2005). We are surprisingly good at evaluating minute degrees of fairness in our "inputs-outcomes ratio" against the "inputs-outcomes ratios of [...] others" with whom we work (p. 403). 

We humans tend to be motivated by our sense of equity; that our rewards should be well-matched to  our performance; that we should have just outcomes. Where we see the same work by different people being rewarded differently, we will be unhappy. Whereas if - taking into account individual difference - we re rewarded similarly, we will generally be happy. Equity does not mean ‘the same’: it is more about the rewards we expect for performance (Miner, 2005; Robbins & Coulter, 2005).

When organisations think that we won't notice inequity: they are deluded. Sometimes we perceive inequity where it does not exist; that may mean that we lack key information, or it may mean an unforeseen inequity... or that our perception is skewed (Miner, 2005). We "might (1) distort either [ou]r own or others’ inputs or outcomes, (2) behave in some way to induce others to change their inputs or outcomes, (3) behave in some way to change [ou]r own inputs or outcomes" (Robbins & Coulter, 2005, p. 403), or "(4) choose a different comparison person, or (5) quit [ou]r job" (p. 404; interestingly close to the five psychological contract options too - voice, silence, retreat, destruction and exit - Maguire, 2003, p. 95). Getting the equity right is in the organisation's best interests if they want staff to stay long term. 

Much research in this area backs up the theory "Employee motivation is influenced significantly by relative rewards as well as by absolute rewards. Whenever employees perceive inequity, they’ll act to correct the situation" (Robbins & Coulter, 2005, p. 404).

Sam

References:

Maguire, H. (2003). Chapter 8 The changing psychological contract: challenges and implications for HRM, organisations and employees. In R. Wiesner, B. Millett (Eds.), Human Resource Management: Challenges and Future Directions (pp. 87-103). John Wiley & Sons.

Miner, J. B. (2005). Chapter 9: Equity Theory J. Stacy Adams. In Organizational Behavior 1: Essential theories of motivation and leadership (pp. 134-158). Routledge.

Robbins, S. P., Coulter, M. K. (2005). Management (7th ed.). Prentice Hall.