Equity Theory definition
First developed in the early 1960s by behavioural psychologist John S. Adams, equity theory is concerned with defining and measuring the relational satisfaction of employees. Adams suggested that employees try to maintain a balance between what they give to an organisation against what they receive, and base satisfaction with their own balance on perceptions of the same balance in colleagues.
The 'inputs,' or what the employee gives to an organisation, can be broken down to many metrics including time, loyalty, effort, tolerance, flexibility, enthusiasm, personal sacrifice, skill and trust in superiors. Outcomes include 'hard' factors, such as salary, job security and employee benefits, but extend to less tangible aspects such as praise, sense of achievement, praise and reputation.
Equity theory is based on a principle that peoples' actions and motivations are guided by fairness and that discrepancies in this fairness in the workplace will spur them to try and redress it. According to Carrell and Dittrich (1978), “employees who perceive inequity will seek to reduce it, either by distorting inputs and/or outcomes in their own minds ("cognitive distortion"), directly altering inputs and/or outcomes, or leaving the organization.”
In business psychology, equity theory comes under the umbrella of organisational justice, which is concerned with employee perceptions of a company's internal and external behaviour and how these perceptions fuel or change their own attitudes and behaviour.
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