Equity theory indicates that outcomes (pay) should be distributed in proportion to inputs (performance).

Question

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Equity theory proposes that individuals perceive fairness in the distribution of outcomes (such as pay) when they feel that the ratio of their inputs (such as performance or effort) to outcomes is similar to the ratio of inputs to outcomes of others with whom they compare themselves. Therefore, outcomes should be distributed in proportion to inputs in order to create a sense of equity and fairness.

Equity Theory Indicates That Outcomes (Pay) Should Be Distributed in Proportion