The equity theory states that individuals judge fairness in compensation by comparing their inputs and outcomes against the inputs and outcomes of referent others.

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The equity theory proposes that individuals assess fairness of their compensation based on the balance between their inputs (e.g., work effort, skill, experience) and outcomes (e.g., salary, benefits, recognition) compared to those of similar others (i.e., referent others or comparison others). If they perceive an inequity or unfairness, individuals may be motivated to restore balance by altering their inputs or outcomes.

The Equity Theory States That Individuals Judge Fairness in Compensation