Discuss equity theory and how it relates to managing for motivation.

Equity theory asserts that when people believe they have been treated unfairly in comparison to others, they try to eliminate the discomfort and restore a perceived sense of equity to the situation. Perceived inequity occurs whenever a person feels that the rewards received for his/her work efforts are unfair given the rewards others appear to be getting for their work efforts. Perceived equity occurs whenever a person perceives that his/her personal rewards/inputs ratio is equivalent to the rewards/inputs ratio of a comparison other.
In using equity theory to guide managerial efforts to influence work motivation, managers should recognize that people who feel underpaid may experience a sense of anger and people who feel overpaid may experience a sense of guilt. Managers should also understand that perceptions of rewards in a social context, not the absolute value of the rewards, determine motivational outcomes. Finally, managers should ensure that any negative consequences of the equity comparison are avoided, or at least minimized, when rewards are allocated.