Which theory explains that people evaluate their performance by comparing their contributions and benefits to those of others?

Equity Theory is a foundational concept in understanding how individuals perceive fairness in the workplace. This theory posits that people assess their performance and satisfaction by comparing the ratio of their inputs (such as effort, skills, and experience) to the outputs (such as salary, recognition, and benefits) against those of others. When individuals perceive that their contributions are equal to their rewards in comparison to others, they feel satisfied and motivated. Conversely, if they believe they are putting in more effort but receiving less reward than others, this can lead to feelings of inequity and dissatisfaction, which may ultimately affect their motivation and performance.

This theory underscores the importance of fairness and justice in the workplace, suggesting that organizations should strive to maintain an equitable environment to foster employee satisfaction and productivity. By understanding Equity Theory, managers can better create systems that ensure fair treatment, thereby enhancing employee morale and reducing turnover.