How does equity theory explain why an employee who receives a raise might still become less motivated?
Think about your answer, then reveal below.
Model answer: Equity theory (Adams) holds that employees compare their input-to-outcome ratio with the ratios of referent others. If an employee receives a raise but learns that a peer doing similar work received a larger raise, the employee perceives inequity — their ratio is unfavorable compared to the referent. This perceived underpayment inequity produces tension that motivates restoration behaviors: reduced effort, demands for more pay, cognitive distortion, or exit.
The key insight is that motivation depends on perceived fairness of relative outcomes, not absolute outcomes. An employee earning $80,000 may be more motivated than one earning $100,000 if the former perceives equity and the latter perceives underpayment relative to comparable others. This explains the common observation that pay raises can backfire when they reveal or create inequities.