NARRATOR: A second process theory is that of equity theory. Equity theory refers to the perceived fairness and outcomes we receive relative to our contributions and the outcomes and contributions of others.

The following illustration of equity theory shows how individuals are motivated. Here, we see two main components, inputs and outcomes. Inputs refer to anything that people give up, offer, or trade to the organization in exchange for outcomes-- for example, effort, experience, education, and so on.

Outcomes are factors that an organization distributes to employees in exchange for their inputs, so for example, salary levels, raises, recognition, et cetera. Individuals compare their own outcome in crude ratio with that of others.

Let us consider an example of a student in OB class. Students' input might be hours spent reading, preparing, attendance in class, attention in class, and so on. Students' outcomes might be learning or grades. Using this example, suppose you study 30 hours for this final exam and receive a B minus. Now, you know what your friend studies for one hour for the same exam and received an A-plus. In such a scenario, you might compare your input outcome ratio to that of your friend and perceive unfairness.

When individuals perceive such unfairness in the workplace, this can affect motivation. Individuals who perceive that they are underrewarded feel anger and tension. To restore equity, they can try to increase the outcomes, for one, for instance, talking to the boss or stealing from the company. Or two, they might shrink their inputs, for example, reducing intensity and persistence of efforts.

What do you think individuals do when they perceive that they are overrewarded? Do they try to create equity? Well, some individuals may feel guilt and thus respond by increasing the inputs, for example, their intensity and persistence of effort, in order to restore equity. In reality, though, people often just readjust the way they conceptualize influence to make them seem bigger. This is what we call cognitive distortion. Of course, no one really tries to shrink their outcomes.