Employees evaluate their pay relative to the pay of other employees. Social scientist have studied this kind of comparison and developed equity theory to describe how people make judgements about fairness. According to their equity, people measure outcomes such as pay in terms of their inputs. To decide whether a certain level of pay is equitable, the person compares her ratio of outcomes and inputs with other people outcomes/ input ratios. In general, employees compare their pay and contributions using several consideration:
How employees respond to their impressions about equity can have a great impact on the organization. Typically, if employees see their pay as equitable, their attitudes and behaviours continue unchanged. If employees see themselves as receiving an advantage, they usually rethink the situation to see it as merely equitable. But if employees conclude that they are under rewarded, they are likely to make up the difference in one of three ways. They might put forth less effort (reduce their inputs), find a way to increase, or withdraw by leaving the organization or refusing to cooperate. Employees’ beliefs about fairness also influence their willingness to accept transfers or promotions.