This document discusses equity theory and how it relates to employee motivation. Equity theory proposes that employees are motivated when they perceive their work contributions are fairly rewarded in relation to others. If an employee feels underpaid compared to coworkers, their work motivation will decrease as they seek pay equity. The document outlines three cases of equity/inequity and how it impacts motivation. It also lists strategies employees may use to reduce inequity, such as reducing work effort. Finally, it provides recommendations for organizations to develop equitable pay systems and monitor internal pay consistency.

2.  This theory simply means that all the workers
in the organization should be treated equally,
then only they will be motivated& thereby
work efficiently & effectively for attaining
organizational goals.

3.  People develop beliefs about what is a fair
reward for one’ job contribution - an exchange
 People compare their exchanges with their
employer to exchanges with others-insiders
and outsiders called referents
 If an employee believes his treatment is
inequitable, compared to others, he or she will
be motivated to do something about it -- that is,
seek justice.

4. Is versus Ir
Os Or
I = Inputs - employee’s contribution to
employer
R = Referent - comparison person
O = Outcomes – employers’ reward to employees

6.  Case 1: Equity -- pay allocation is perceived
to be to be fair - motivation is sustained
 Case 2: Inequity -- Underpayment.
Employee is motivated to seek justice. Work
motivation is disrupted.
 Case 3: Inequity - Overpayment. Could be
problem. Inefficient. In other words,
employees lose their working mentality.

7.  The employee is motivated to have an
equitable exchange with the employer.
 To reduce inequity, employee may…
 Reduce inputs (reduce effort)
 Try to influence manager to increase outcomes
(complain, file grievance, etc.)
 Try to influence co-workers’ inputs (criticize
others outcomes or inputs)
 Withdraw emotionally - or physically (engage in
absenteeism, tardiness, or quit)

8.  Develop tools to pay people in proportion to
their contributions
 Let employees know who their pay referents
are in the pay system: identify pay competitors
and internal pay comparators.
 Strive for consistent pay allocations
 Monitor internal pay structure and position in
the labor market for consistency.