Fair Compensation Theory

Fair Compensation Theory suggests that employees perceive their pay as fair when it roughly matches the value of their work, skills, and contributions. If they feel underpaid, they may experience dissatisfaction, reduce their effort, or seek other opportunities. Conversely, if they believe they are fairly compensated, they are more motivated, committed, and likely to perform well. The theory emphasizes the importance of aligning wages with employee expectations and market standards to promote motivation, fairness, and organizational harmony.