Equity is a social comparison process , resulting when individuals compare their pay to the pay of others. Equity is a subjective evaluation, not an objective one. Based on the comparison that individuals use, each individual is likely to develop different perceptions of equity. Individuals compare their pay to the pay of others in similar cohort groups, generally age and education. Individuals compare their pay to the pay they received at another point in time.
Inequity is experienced when the ratio is out of balance.
Thus when the individual perceives that his or her contribution are equal to the comparison and his or her rewards are lower, or his or her contributions are greater and rewards are equal, inequity is felt. They typically include responsibility, effect, skills, education, and working conditions required by the job itself. Personal contributions include attributes the individuals bring to the organization that they believe differentiate them from others such as experience, longevity, and extra education. Performance contributions include the extra effort and results that differentiate one employee from another. Therefore, inequity itself is not generally viewed as a management problem unless it appears to be related to turnover of reduced performance.