Equity theory - Definition and Overview

Equity theory. In business, the idea that employees try to maintain equity between inputs and outputs compared to others in similar positions. For example, a teacher employed in a school in Toronto, would expect his pay to be somehow equal to a teacher in Alberta. Care should be taken to avoid taking this too far. It is unrealistic for a teacher in Africa to expect a pay that is equal to a Canadian teacher or American for that matter. If one feels that he is over compensated compared to his colleague, they tend to put extra effort to offset the perceived overcompensation. On the other hand, undercompensation result to the employee taking it slow because of the perceived injustice. Another form of inequity is compensation that consider the gender of the employees. Women have in history be complaining that, they are paid relatively poorly compared to their colleagues who have the same duties that they are executing. Inequity may also appear in a vertical relationship. Most junior managers probably are not comfortable with the fact that their bosses are paid hundred of times their salary for the slight duties they take over junior managers. This was asserted by Peter Drucker on his work in compensation.

Example Usage of Equity