In 1963, the workplace and behavioral psychologist John Stacey Adams put forward a job motivation explaining relational satisfaction in terms of perceptions of fair/unfair distributions of resources within interpersonal relationships. The structure of equity in the workplace is based on the ratio of inputs (typically effort, loyalty, hard work, commitment, skill, ability, adaptability, flexibility, tolerance, determination, heart and soul, enthusiasm, trust in our boss and superiors, support of colleagues and subordinates, personal sacrifice, etc.) to outcomes (typically all financial rewards - pay, salary, expenses, perks, benefits, pension arrangements, bonus and commission - plus intangibles - recognition, reputation, praise and thanks, interest, responsibility, stimulus, travel, training, development, sense of achievement and advancement, promotion, etc.).
The Equity Theory does not assess effort and reward, but goes beyond by adding a crucial perspective of comparison with referent others: It is not so much that we need to feel that there is a fair balance between inputs and outcomes, but we do measure it by comparing our own balance or ratio with the ratio enjoyed or endured by “referents” and this comparison heavily impacts our motivation level.
When we feel fairly or advantageously treated we are more likely to be motivated; and when we feel unfairly treated we are highly prone to feelings of disaffection and demotivation. The way that we measure this sense of fairness is at the heart of Equity Theory. In practice this helps to explain why we are so strongly affected by the situations, views and gossip of colleagues, friends, partners etc., in establishing their own personal sense of fairness or equity in their work situations.
There are a couple of very strong impacts of the Equity Theory on people management: We measure the totals of our inputs and outcomes, and we ascribe personal values to those; Staff perceptions of inputs and outcomes of themselves and others may be incorrect, and perceptions need to be managed effectively; if we believe we are over-compensated we may increase our effort, or we may internalize a sense of superiority and actually decrease our efforts. As you can see, there is no easy way to make use of the Equity Theory for a manager, and its complexities are numerous.Sources: