Equity Theory

Equity theory is a theory of motivation that suggests that employee motivation at work is driven largely by their sense of fairness. Employees create a mental ledger of the inputs and outcomes of their job and then use this ledger to compare the ratio of their inputs and outputs to others. Inputs may include effort, performance, skills, education, and experience; outcomes generally refer to pay, benefits and promotions. If employees perceive that their ratio of inputs to outcome is not equitable with that of their peers, they may become demotivated and dissatisfied with their job.