EQUITY THEORY Feelings of equity are explained by equity theoryﬁ , which says that employees determine feelings of equity by comparing their own outcome/input ratio to theoutcome/input ratio of some other person!“8 As Exhibit 5.7 illustrates, the outcome/input ratio is the value of the outcomes you receive divided by the valueof the inputs you provide in the exchange relationship. Inputs include such things as skill, effort, reputation, performance, experience, and hours worked.Outcomes are what employees receive from the organization, such as pay, promotions, recognition, interesting jobs, and opportunities to improve one’s skills andknowledge. EXHIBIT 5.7 Equity Theory Model Your Comparison Other’sOutcome/Input Ratio Outcome/Input Ratio Your outcomes Other’s outcomes – Pay/benefits ~ Promotions c"mi?are 0W" . Payibenefits – Promotions- Recognition – Workspace- Learning – Interestingjob ratio with – Reco nition ~Works ace9 p other’s ratio – Learning – Interestingiob Your inputs Other’s inputs – Skiil – Reputation- Efiort . Hours~ Performance . Experience – Skili . Reputation – Effort – Hours- Performance – Experience Perceptionsof equity orineq uity Equity theory states that we compare our outcome/input ratio with that of a comparison other.89 The comparison other might be another person or group ofpeople in other jobs (e. g., comparing your pay with your boss’s pay) or another organization. Some research suggests that employees frequently collectinformation on several referents to form a “generalized” comparison other.90 For the most part, however, the comparison other varies from one person andsituation to the next and is not easily identifiable. The comparison of our own outcome/input ratio with the ratio of someone else results in perceptions of equity, underreward inequity, or overreward inequity. Inthe equity condition, people believe that their outcome/input ratio is similar to the ratio of the comparison other. In the underreward inequity situation, Wpeople believe their outcome/input ratio is lower than the comparison other’s ratio. In the overreward inequity condition, people believe their ratio ofoutcomes/inputs is higher than the comparison other’s ratio. Inequity and Employee Motivation How do perceptions of equity or inequity affect employee motivation? The answer is illustrated in Exhibit 5.8 . Whenpeople believe they are under— or overrewarded, they experience negative emotions (called inequity tension).91 As we have pointed out throughout this chapter,emotions are the engines of motivation. In the case of inequity, people are motivated to reduce the emotional tension. Most people have a strong emotionalresponse when they believe a situation is unfair, and this emotion nags them until they take steps to correct the perceived inequity.