Equity theory proposes that individual rewards are based on employee motivation and not based on individual efforts or performance.

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Equity theory proposes that individual rewards are based on both individual efforts and performance. This theory suggests that employees are motivated when they perceive that their inputs (efforts, skills, experience) and outputs (rewards, pay, recognition) are similar to those of their peers in the same job or position. If an employee perceives inequity, i.e. they are putting in more effort or achieving better results but not being rewarded in the same way as their colleagues, they may become demotivated and dissatisfied with their job. Therefore, individual rewards are not solely based on motivation, but also on performance and efforts.

Equity Theory Proposes That Individual Rewards Are Based on Employee