Fairness perceptions andsatisfaction with components

of pay satisfactionI.M. Jawahar

Department of Management & Quantitative Methods, College of Business,Illinois State University, Normal, Illinois, USA, and

Thomas H. StoneDepartment of Management, Spears School of Business,Oklahoma State University, Stillwater, Oklahoma, USA

Abstract

Purpose – The purpose of this paper is to integrate two streams of research and investigate theassociations of different forms of justice perceptions on attitudinal reactions to four components ofcompensation: pay level, pay raises, benefits, and structure and administration In doing so, it respondsto calls for more primary studies linking interactional justice perceptions to pay satisfaction.

Design/methodology/approach – In total, 151 technology professionals employed at aninternational consulting company were surveyed to investigate hypotheses. Structural equationmodeling was used to test the model.

Findings – As hypothesized, distributive justice was related to satisfaction with pay level, proceduraljustice to satisfaction with benefits, raises and pay structure and administration, and informationaljustice to pay level and structure and administration.

Research limitations/implications – The primary limitations of this research are thecross-sectional research design and a single source of survey data.

Practical implications – Since pay dissatisfaction is significantly related to numerous employeeoutcomes and attitudes toward pay meditate the relationship between compensation and work outcomes,understanding the role of perceived justice may facilitate managers’ ability to influence pay satisfaction. HRpolicies and managers’ behaviors can influence pay satisfaction as much or more than actual pay(distributive justice). For example, results for informational justice suggest pay satisfaction can be increasedby clearly and candidly explaining and communicating the organization’s procedures and processes.

Originality/value – This paper is the first to examine associations between the four-factor justicemodel and components of pay satisfaction and demonstrate that informational justice adds additionalexplained variance for pay level, raises, and structure and administration.

Keywords Pay, Employee attitudes, Job satisfaction, Compensation

Paper type Research paper

Although the perception of fairness is important to all human resource decisions andprocesses (Cohen-Charash and Spector, 2001; Jawahar, 2007; Thurston and McNall,2010), it is particularly important to compensation decisions, such as pay, pay raises andbenefits. Indeed, perceived fairness of compensation, the procedures used to makecompensation-related decisions, and the manner in which compensation-relatedinformation is communicated play an integral role in shaping reactions to criticalelements of the compensation system (Milkovich and Newman, 2008; Nelson et al., 2008).Yet, the literatures on attitudinal reactions pertaining to compensation and fairnessperceptions have evolved independently (Williams et al., 2006). Even though most would

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Received January 2010Revised June 2010,

July 2010Accepted July 2010

Journal of Managerial PsychologyVol. 26 No. 4, 2011

pp. 297-312q Emerald Group Publishing Limited

0268-3946DOI 10.1108/02683941111124836

readily acknowledge that fairness is important to compensation decisions, researchexamining how fairness perceptions relate to reactions to components of pay isrelatively scarce.

Pay and satisfaction with pay is of great importance to employees (Society for HumanResource Management (SHRM, 2007b)) and to organizations (Bergmann and Scarpello,2002; Dreher et al., 1988; Gerhart and Rynes, 2003, Heneman and Judge, 2000;Williams et al., 2006). Pay satisfaction is a multidimensional construct. Pay level refers tothe individual’s current direct compensation in terms of wages and salary. Raises refer tochange in pay level. Benefits reflect indirect pay to the individual in the form of health,retirement and payment for time not worked, and other non-financial returns. Paystructure and administration refers to the hierarchical relationships created among payrates for different jobs within the organization and procedures by which the pay systemis administered (Heneman and Schwab, 1985).

Researchers have argued for incorporation of organizational justice into the study ofpay satisfaction (Heneman and Judge, 2000; Miceli and Lane, 1991). Although severalresearchers have speculated about the relations between justice perceptions and paysatisfaction (Scarpello, 1988), the role of justice constructs as antecedents or consequencesof pay satisfaction has not been clearly described. However, the preponderance ofresearch on pay satisfaction has focused on pay level satisfaction to the exclusion ofsatisfaction with the other dimensions of pay satisfaction: satisfaction with benefits,satisfaction with raises, and satisfaction with structure and administration.Consequently, a recent meta-analysis of pay satisfaction by Williams et al. (2006) wasrestricted to only one dimension of pay satisfaction, satisfaction with pay level.In addition, previous research has related one or two dimensions of justice perceptions,but not all four, to one or two dimensions of pay satisfaction to the exclusion of otherdimensions. Research has shown the four dimensions of pay satisfaction are correlatedwith each other (Williams et al., 2006). Therefore, Williams et al. (2007) cautioned thattests of models including only one or two, but not all dimensions of pay satisfaction mightbe misspecified and consequently, their results suspect. Because the four justicedimensions are also correlated with each other (Colquitt et al., 2001), the same criticism isapplicable to studies that examined relationships between justice constructs and paysatisfaction but failed to include all four dimensions of justice.

Against this backdrop, our study makes an important contribution as it included allfour dimensions of justice perceptions and all four dimensions of pay satisfaction.Specifically, this is the first study to examine the relationship between the four forms ofjustice perceptions, namely distributive justice, procedural justice, interpersonal justiceand informational justice and the four dimensions of pay satisfaction, namelysatisfaction with pay level, benefits, raises, and structure and administration.In addition, it responds to calls for more primary studies linking interactional justiceperceptions to pay satisfaction (Williams et al., 2006, p. 406).

The article is organized as follows. First, a brief overview of the different forms offairness perceptions is presented. Second, relevant research on fairness and componentsof the pay system are integrated to develop specific, heretofore untested, hypotheses.Third, results of a study conducted to test these hypotheses are discussed. Lastly,implications of results for practitioners are discussed and directions for future researchare offered.

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Justice perceptionsEarly research on fairness addressed the fairness of the distribution of outcomes(e.g., pay). Research on distributive justice has established that the fairness of outcomes(Adams, 1965) significantly affects people’s attitudes. A decade later, Thibaut andWalker (1975) introduced the construct of procedural justice. Procedural justice refers tothe fairness of the procedures used to decide outcomes (Leventhal, 1980; Thibaut andWalker, 1975). Early research focused on the structural aspects of procedures (e.g., voiceopportunities, consistency), and demonstrated the importance of procedural fairness tohuman resource management processes including performance appraisal (Greenberg,1986) and selection (Gilliland, 1994).

Bies and Moag (1986) introduced the construct of “interactional justice” to examinethe “social side of justice.” Some researchers who adhere to the relational model of justicetreat interactional justice as a component of procedural justice (Tyler and Blader, 2000;Tyler and Lind, 1992). Others treat it as a third form of justice, independent of proceduraland distributive justice (Bies, 2001; Bies and Moag, 1986). According to Bies and Moag,interactional justice consists of two elements:

(1) informational justice–whether the reasons underlying the resource allocationdecision are clearly, truthfully, and adequately explained to the affected parties; and

(2) interpersonal justice – whether those responsible for implementing the decisiontreat the affected individuals with dignity and respect. Greenberg (1993, 1994)suggested that interpersonal justice primarily alters reactions to decisionoutcomes because supervisor sensitivity can make people feel better about anunfavorable outcome.

Informational justice primarily alters reactions to procedures as explanations providethe information needed to evaluate structural aspects of the process. Colquitt (2001)tested Greenberg’s assertion and found support for a four-factor model in two separatesamples. Consistent with Greenberg’s (1993) proposal, Colquitt identified distributivejustice, procedural justice, interpersonal justice, and informational justice as the fourfactors comprising the construct of organizational justice (see also Ambrose, 2002;Bies, 2001; Judge and Colquitt, 2004; Jawahar, 2007; Kernan and Hanges, 2002;Thurston and McNall, 2010).

Integration and hypotheses developmentDistributive justice and satisfaction with pay componentsResearch on distributive justice has established that fairness of outcomes (Adams, 1965;Greenberg, 1988) is very important to people and that distributive justice is related toperson or individual-referenced outcomes (Colquitt et al., 2001; Folger and Konovsky,1989; McFarlin and Sweeney, 1992; Sweeney and McFarlin, 1993). Satisfaction with paylevel and satisfaction with pay raises are person-referenced outcomes. Previous studiesreported a positive relationship between distributive justice and satisfaction with pay level(e.g. Cohen-Charash and Spector, 2001; Miceli and Mulvey, 2000). The Cohen-Charashand Spector (2001) meta-analysis found distributive justice more highly correlated(weighted mean correlations 0.62 v.0.48) with pay satisfaction than procedural justice.Tremblay, et al. (2000) measured distributive justice with regard to pay broken downinto justice based on needs, internal equity and external equity and reported thatdistributive justice accounted for 26 per cent of the variance in pay level satisfaction.

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Others have operationalized distributive justice as “pay comparisons” and reported a linkbetween distributive justice and satisfaction with pay level (Williams et al., 2008). In theirmeta-analysis, Williams et al. (2007) found distributive justice strongly related tosatisfaction with pay level (r ¼ 0.79).

The concept of basing pay on performance is ingrained in American organizations(Gomes-Mejia and Welbourne, 1991). Indeed, in their meta-analysis, Williams et al.(2006) found employee perceptions of performance-reward contingency was stronglyrelated to pay level satisfaction (r ¼ 0.57). In a recent study, Williams et al. (2008)reported that pay raise adequacy, the extent to which pay raises meet employees’expectations was related to satisfaction with pay raises. Results of these two studiessuggest that distributive justice perceptions are likely to be strongly related tosatisfaction with pay raises.

At least two studies reported that distributive justice is related to satisfaction withbenefits (Davis and Ward, 1995; Martin and Bennett, 1996), but failure to measure othercomponents of pay and interactional justice perceptions may be one reason why thesestudies found a positive association between distributive justice and satisfaction withbenefits (Williams et al., 2007). Additionally, distributive justice has been measured fromat least two perspectives. For example, the Williams et al. (2002, 2008) studiesapproached distributive justice from the perspective of comparison with externalreferents, “benefit comparisons” focusing on respondents’ benefits compared to otherreferents such as the same job in a different organization, those of similar age, trainingand seniority. However, other measures of distributive justice (Colquitt, 2001), focus oninternal equity, i.e. feelings of fairness of ones inputs to work compared to outcomesexperienced. In addition, in most organizations, the benefits one receives or the structureand administration of pay systems are not dependent on individual contributions andtend to be the same for specific employee groups (e.g., non-exempt employees).Therefore, satisfaction with benefits and satisfaction with structure and administrationof pay systems are unlikely to be related to distributive justice as these aresystem-referenced outcomes:

H1. Perceptions of distributive justice will be positively related to satisfactionwith pay level (1a) and satisfaction with pay raises (1b).

Procedural justice and satisfaction with pay componentsJenkins and Lawler (1981) found involvement in compensation decisions is positivelyrelated to pay satisfaction. In their meta-analysis, Williams et al. (2006) reported a strongrelationship between procedural justice and satisfaction with pay level (r ¼ 0.42).However, when the effect of distributive justice is statistically controlled, Tremblay et al.(2000) found procedural justice failed to explain any variance in satisfaction with paylevel. Tremblay et al.’s (2000) results are consistent with predictions of the two-factorjustice model (McFarlin and Sweeney, 1992) and the agent-system model (Bies andMoag, 1986).

In general, most people believe that they are above-average performers(e.g. Alicke et al., 1995) and should be rewarded for their performance (Gomez-Mejiaand Welbourne, 1991); consequently, they are sensitive to pay increases and the processused to allocate pay increases (Harris et al., 2008). Thus, fairness in the procedures usedto allocate pay raises increases satisfaction with pay raises.

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The two-factor justice model (McFarlin and Sweeney, 1992) proposes thatperceptions of distributive justice are more closely related to person-referencedoutcomes whereas perceptions of procedural justice are related to evaluations oforganization or system-referenced outcomes. Sweeney and McFarlin (1993) were able todemonstrate that distributive justice better predicts person-referenced outcomes thanprocedural justice and that procedural justice better predicts system-referencedoutcomes than distributive justice. In a meta-analysis, Colquitt et al. (2001) foundsupport for Sweeney and McFarlin’s two-factor model particularly for person andsystem-referenced attitudes. The gist of Bies and Moag’s (1986) agent-system model isthat perceptions of procedural justice likely influence reactions toward the organizationor organizational systems. Satisfaction with benefits and satisfaction with structure andadministration of pay systems are organization or system-referenced outcomes.Sweeney and McFarlin’s (1993) two-factor model and Bies and Moag’s (1986)agent-system model suggest that perceptions of procedural justice are likely related tosystem-referenced outcomes, such as satisfaction with benefits and satisfaction withstructure and administration of pay systems.

According to the relation model of procedural justice (Lind, 1995; Lind and Tyler,1988) people join groups to obtain both economic resources and psychological rewardsassociated with group affiliation (Cropanzano and Greenberg, 1997). Employee benefitsare considered group membership rewards designed to strengthen an employee’srelationship to the organization (McCaffery, 1992). For example, many employeebenefits, such as vacation time, become more valuable over time. In many cases,procedures for benefit use may be the only knowledge an employee has about the benefit,not the experience of the benefit itself (e.g. retirement, long-term disability insurance).Consequently, procedural justice perceptions are likely to relate to satisfaction withbenefits.

Martin and Bennett (1996) found a weak, but significant relationship betweenprocedural justice regarding benefits and benefits satisfaction. In their 2000 study,Tremblay et al. reported that procedural justice explained 24 per cent of the variance insatisfaction with benefits. They also found benefit satisfaction was based more on anaccurate benefit communication program than on involvement in decisions and thechoice of employee benefits. Thus, procedural justice is likely to be related to satisfactionwith structure and administration of the pay system:

H2. Perceptions of procedural justice will be positively related to satisfaction withpay raises (2a), satisfaction with benefits (2b), and satisfaction with structureand administration (2c).

Interpersonal justice and satisfaction with pay componentsIn most organizations, when a new employee is hired the supervisor will have someinfluence on the deciding the starting pay. However, once the new hire is on board,supervisors have very little influence in terms of authorizing a higher pay level outsideof the pay raise or equity adjustment process. In addition, supervisors have very littlecontrol over benefits offered to an employee or the manner in which pay is structured andadministered. The effect of interpersonally sensitive treatment will influence howthe supervisor is perceived; however, it is unlikely to have a substantial impacton employees’ satisfaction with pay level, the benefits offered by the organization or themanner in which pay is structured and administered.Supervisors have more control over

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pay raises than other pay components. People, in general, feel more undercompensatedthan overcompensated (Harris et al., 2008). When pay is secret, employees tend tooverestimate the pay of those both at their same level and below and underestimate thepay of those above them (Milkovich and Anderson, 1972). Research has shown peopleare more apt to engage in upward comparisons than lateral or downward comparisons(Harris et al., 2008). Given that most people believe they are above-average performers(e.g., Alicke et al., 1995), they are likely to feel their performance and contributionswarrant a larger pay increase than they receive, and thus feel the outcome to besomewhat unfavorable. Interpersonal justice affects reactions to decision outcomesbecause supervisor sensitivity makes people feel better about an unfavorable outcome(Greenberg, 1994). By showing sensitivity and treating employees with respect anddignity, supervisors may be able to influence employee satisfaction with their payincreases. Thus, perceptions of interpersonal justice are likely to be positively related tosatisfaction with pay increases:

H3. Perceptions of interpersonal justice will be positively related to satisfactionwith pay raises.

Informational justice and satisfaction with pay componentsInformational justice primarily alters reactions to procedures as explanations providethe information needed to evaluate structural aspects of the process (Greenberg, 1993,1994). Subordinate employees trust supervisors who communicate in an“informationally” just manner (Cohen-Charash and Spector, 2001).

Employees are most concerned with pay level and raises and when they areconcerned with either are likely to seek information pertaining to the processes used todetermine pay level and raises. In such cases, they are likely to ask their supervisor.The extent to which the supervisor candidly and thoroughly communicates therationale for the processes used and tailors this communication to the specific needs ofthe employee (Bies and Moag, 1986; Colquitt, 2001), employees are likely to be satisfiedwith pay, raises and the structure and administration of the pay system. Consequently,informational justice may be expected to be related to satisfaction with pay level, raisesand the structure and administration of pay systems:

H4. Perceptions of informational justice will be positively related to satisfactionwith pay level (4a), satisfaction with raises (4b) and satisfaction with structureand administration (4c).

MethodSample and procedureData were collected from the Information Technology Consulting Division of a largeinternational consulting company. Two hundred and twenty employees of this divisionlocated in the Midwest United States were invited to participate in the study.Participation in the study was voluntary and anonymity was assured. The 151respondents (response rate 68.6 per cent) were employed as computer programmers,software engineers, systems designers, project managers and managers. Eighty-fourpercentage of the respondents were men. Twenty-eight percentage (N ¼ 42) of theparticipants had a Masters Degree and the rest (N ¼ 109) had an Undergraduate Degree.The average age was 29.33 (SD ¼ 4.47) years. On average, respondents had

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6.31 (SD ¼ 4.18) years of organizational tenure, and 4.12 (SD ¼ 2.13) years of jobtenure.The company’s compensation philosophy was to pay at or better than the marketrate and it offered a very competitive benefits package that provided coverage for health,life, dental and vision, a 401 (K) retirement plan, payment for time not worked, andtuition reimbursement. The company was non-union. As with most companies, thiscompany promoted pay secrecy. Pay increases were contingent on performance andsupervisors were provided with a pay raise budget and suggested range for allocatingpay raises. They were required, however, to submit written justification for their payraise allocations to their superiors.

MeasuresFairness perceptions In developing the multidimensional measure of justice, Colquitt(2001) was mindful of Greenberg’s (1993) plea for “convertibility” so as to make justicemeasures useful in various of contexts (Greenberg, 2001). This “convertibility” isaccomplished by substituting appropriate outcome(s) or procedure(s) in the parenthesescontained in each of the items used for measuring distributive and procedural justice(Colquitt, 2001, p. 389). The same items used by Colquitt (2001, p. 389) were used tomeasure distributive (four items, a ¼ 0.83), procedural (seven items, a ¼ 0.83),interpersonal (four items, a ¼ 0.92), and informational justice perceptions (five items,a ¼ 0.89). Participants used a 5-point scale (1-to a small extent, 5-to a large extent) torespond to the items.

Satisfaction measures. The 18-item Pay Satisfaction Questionnaire (PSQ) developedby Heneman and Schwab (1985) was used to measure satisfaction with pay level (a ¼ 92),benefits (a ¼ 90), raises (a ¼ 75) and satisfaction with structure and administration(a ¼ 82). Participants used a 5-point scale (1-very dissatisfied, 5-very satisfied) to respondto the items.

ResultsConfirmatory factor analysis (CFA)A Confirmatory factor analysis (CFA) was conducted using LISREL 8.8 ( Joreskog andSorbom, 1993). Sample covariances served as input for LISREL estimates and themaximum likelihood approach was employed (Anderson and Gerbing, 1988; Joreskogand Wold, 1982).

As recommended by Hu and Bentler (1999), root mean square error of approximation(RMSEA), comparative fit index (CFI) and standardized root mean square residual(SRMR) were used to evaluate model fit. Factor structures of three different models werecompared. Model 1 comprised of all the items used to measure the eight constructs. It didnot fit the data (x2(665, N ¼ 151) ¼ 3,160.47, RMSEA ¼ 0.16, RMSEA 90 per cent CI(0.15, 0.16), CFI ¼ 0.84, and SRMR ¼ 0.10). Model 2, a two-factor model comprised of allthe items used to measure justice perceptions as one factor and all the items used tomeasure satisfaction with compensation components as a second factor, also did not fitthe data (x2(664, N ¼ 151) ¼ 1,731.73, RMSEA ¼ 0.11, RMSEA 90 per cent CI (0.10,0.11), CFI ¼ 0.87, and SRMR ¼ 0.94). Model 3 was the hypothesized model in whichitems used to measure each of the eight constructs were specified to load on theirrespective constructs. The hypothesized model was supported as fit statistics indicatedgood fit [x2(637, N ¼ 151) ¼ 888.18, RMSEA ¼ 0.05, RMSEA 90 per cent CI (0.04, 0.053),CFI ¼ 0.98, and SRMR ¼ 0.06].

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Since a single source was used collect data, the procedures recommended byWidaman (1985) and used by several researchers (e.g. Carlson et al., 2010; Williams et al.,1989) were used to test for method bias. If common method variance exists, a model witha method factor will fit the data significantly better than a model with no method factor.To test for method effects, we created an eight-factor plus method factor model in whichall items used in the study had dual loadings and the correlation between the methodfactor and each substantive factor was set to zero. While the model fit the data well[x2(599, N ¼ 151) ¼ 763.03, RMSEA ¼ 0.04, RMSEA 90 per cent CI (0.03, 0.05),CFI ¼ 0.98, and SRMR ¼ 0.05] only nine out of the 38 factor loadings on the methodfactor were significant.

Nevertheless, the hypothesized eight-factor model and the eight-factor plus methodmodel were compared and results of the chi-square difference indicated that the lessrestrictive model should be retained, suggesting the presence of some level of methodbias. Next, to estimate the level of method bias, we partitioned the variance accounted forby the different sources (trait, method and error). The sum of the squared factor loadingsis used to index the total amount of variance due to trait factors, method factors andunique variance. Results of this partitioning indicated that while the method factorimproved model fit to a small degree, the “common method” accounts for only 8 percentof the total variance, much less than the 25 per cent observed in the meta-analyticinvestigation of Williams et al. (1989), suggesting that common method variance is not apervasive problem in this study and that the relationships observed representsubstantive rather than artifactual effects. Means, standard deviations, and correlationsbetween latent constructs from the PHI matrix are reported in Table I.

Structural modelThe structural model included paths from distributive justice to pay level and raises,from procedural justice to raises, benefits and structure/administration frominterpersonal justice to raises, and from informational justice to pay level, raises andstructure/administration. All other paths were constrained to zero. Independentvariables and associated error terms were allowed to correlate with each other. Likewise,dependent variables and the associated error terms were allowed to correlate with eachother. The structural model had the same indicator structure as the measurement modeland was fit to the data.

The structural model provided a good fit to the data, x2 (644, N ¼ 151) ¼ 899.33,RMSEA ¼ 0.05, RMSEA 90 per cent confidence interval (0.043, 0.054), CFI ¼ 0.98,

M SD 1 2 3 4 5 6 7 8

Distributive justice 2.83 0.86 (0.83)Procedural justice 2.47 0.73 0.54 (0.83)Interpersonal justice 3.52 0.97 0.40 0.44 (0.92)Informational justice 2.88 0.88 0.56 0.62 0.55 (0.89)Pay level 2.33 0.81 0.47 0.47 0.30 0.48 (0.92)Benefits 2.40 0.81 0.35 0.42 0.31 0.42 0.75 (0.90)Raises 2.56 0.73 0.47 0.54 0.36 0.51 0.74 0.64 (0.75)Structure and admin. 2.38 0.66 0.45 0.53 0.36 0.52 0.72 0.73 0.74 (0.82)

Notes: Correlations are significant at: p , 0.01; scale reliability is reported on the diagonal

Table I.Means, standarddeviations andcorrelations betweenstudy variables

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and SRMR ¼ 0.06. An alternative model was tested by freely estimating the previouslyconstrained paths. That is, in this alternative model, all four justice perceptions haddirected paths to all four components of pay satisfaction. This alternative model also fitthe data (x2 (637, N ¼ 151) ¼ 888.18, RMSEA ¼ 0.51, RMSEA 90 per cent confidenceinterval (0.043, 0.059), CFI ¼ 98, and SRMR ¼ 0.07). The chi-square difference test wasconducted between the hypothesized model and the alternative model. The obtainedchi-square difference of 11.15 for seven degrees of freedom was smaller than the criticalchi-square value of 14.07 indicating that the less restrictive alternative model should berejected and the hypothesized model retained (Figure 1).

In the hypothesized structural model, distributive justice was related to satisfactionwith pay level (b ¼ 0.27, p , 0.05) but not with satisfaction with raises (b ¼ 0.14, ns).Thus, H1a was supported but not H1b. Procedural justice was related to satisfaction withbenefits (b ¼ 0.41, p , 0.01), satisfaction with raises (b ¼ 0.38, p , 0.05) and satisfactionwith structure and administration (b ¼ 0.32, p , 0.05). H2 was fully supported. Our datafailed to support H3 as interpersonal justice was not significantly related to satisfactionwith raises (b ¼ 0.12, ns). Informational justice was related to satisfaction with pay level(b ¼ 0.30, p , 0.05) and satisfaction with structure and administration (b ¼ 0.32,p , 0.05), thus supporting H4a and H4c. Informational justice was marginally related tosatisfaction with raises (b ¼ 0.22, p , 0.10), thus providing partial support for H4b.Collectively, the model explained 27 per cent of the variance in satisfaction with pay level,17 per cent in satisfaction with benefits, 37 per cent in satisfaction with raises and35 per cent of the variance in satisfaction with pay structure and administration.

DiscussionIn this study, two streams of research were integrated and we examined the associationsbetween distributive, procedural, interpersonal and informational justice perceptions

Figure 1.Results of structural

equation modeling

Distributivejustice

Proceduraljustice

Interpersonaljustice

Informationaljustice

Satisfactionwith structure/administration

Satisfactionwith raises

Satisfactionwith benefits

Satisfactionwith pay

b = 0.27*

b = 0.41**

b = 0.32*

b = 0.12

b = 0.30*

b = 0.22***

b = 0.38*b = 0.32*

b = 0.14

Notes: *p <0.05, **p < 0.01, ***p <0.10; only beta values of hypothesized relationships are reported;completely standardized factor loadings of indicators on latent variables are reported in the appendixand are not shown here

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and all components of pay satisfaction. As hypothesized, distributive justice was relatedto satisfaction with pay level, procedural justice to satisfaction with benefits, raises andpay structure and administration and informational justice to pay level and structureand administration. Contrary to expectations, interpersonal justice was unrelated to paysatisfaction. Collectively, the hypothesized model explained 27 per cent of the variance insatisfaction with pay level, 17 per cent with benefits, 37 per cent raises and 35 per cent ofthe variance in satisfaction with pay structure and administration.

Contributions of the researchOur results for the hypothesized paths from distributive justice, H1, and informationaljustice, H4, to pay level are consistent with the bulk of prior research (Miceli and Mulvey,2000; Tremblay et al., 2000; Williams et al., 2006). Arguably, equity is a fundamentalcomponent of justice, particularly distributive justice. In equity theory (Adams, 1965),pay is a major outcome factor. Colquitt’s (2001) distributive justice items tap equityperceptions directly asking about feelings of fairness of ones inputs to work compared tooutcomes. Additionally, our finding of a significant path from informational justice topay level satisfaction supports arguments of Bies and Moag (1986) and Greenberg (1993,1994) and Colquitt’s (2001) findings. That is, satisfaction with one’s level of pay isaffected by both equity perceptions and how clearly and candidly one’s supervisorexplains and communicates the organization’s procedures and processes to subordinateemployees.Although we hypothesized all four dimensions of justice would relate tosatisfaction with pay raises, only the path from procedural justice was significant( p , 0.01) and informational justice was marginally significant ( p , 0.10). The pathfrom interpersonal justice to pay raises was also not significant. It was the only one of thefour types of justice unrelated to any component of pay satisfaction. We had expected itto be related to pay raises since raises are normally determined by and discussed withone’s supervisor. It is likely respondents’ assessments of interaction with their managershad relatively little effect on satisfaction with raises. Indeed, as seen in Table 1, thecorrelations of interpersonal justice with pay satisfaction were lower than those for otherforms of justice. However, the interpersonal justice scale is notable due to its high mean,3.52. Respondents in this sample were comparatively more satisfied with the dignity,respect and politeness of their managers than other justice related behaviors. This is notsurprising as employees and supervisors were highly educated knowledge workers.In addition, employees were paid at or above the market, received a generous benefitpackage and healthy pay raises relative to the IT industry. However, it will be useful forfuture research to consider alternative measures of interpersonal justice more salient todiscussion of raises and other aspects of compensation such as explanation of salary andpay structure.

As hypothesized, procedural justice predicted satisfaction with benefits. This findingis consistent with previous research (Tremblay et al., 2000). Finally, procedural andinformational justice combined to predict satisfaction with pay structure andadministration accounting for 35 per cent of the variance. This finding is consistentwith Sweeney and McFarlin’s (1993) two-factor model and Bies and Moag’s (1986)agent-system model that suggests system-referenced outcomes, such as satisfactionwith benefits and satisfaction with structure and administration of pay systems shouldbe related to perceptions of procedural justice. As with benefits, important factorsaffecting justice and hence satisfaction include procedural items of consistency, freedom

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from bias and accurate information provided by one’s manager in a thorough, candidand timely manner (informational justice). Pay structure and administration likely differfrom benefits in that workers tend to obtain pay structure and administrationinformation from their manager while benefits information would come from HR staff.

Potential limitationsThe cross-sectional nature of the data precludes inferences of causality. Additionally,although common method bias is a concern, results of confirmatory factor analysis andsupplemental analyses reported earlier indicate that common method bias is an unlikelyexplanation of study results. Since respondents in this study were from one organization,generalizability of results is limited. However, respondents were knowledge workersand studying knowledge workers is an attractive feature of this study, given the rapidlygrowing population of knowledge workers in the economy. Unlike some studies thathave measured consequences of satisfaction, such as absenteeism, turnover, andperformance, the scope of this study was somewhat narrower.

Implications and directions for future researchResults of this study suggest that informational justice plays an important role insatisfaction with pay level, pay structure and administration and possibly pay raises.This is potentially an important finding since prior research (Heneman and Judge , 2000;Folger and Konovsky, 1989; Williams et al., 2006) found that distributive and proceduraljustice provided adequate explanations of pay satisfaction. To examine the role ofinformational justice, three hierarchical regressions were run. Results of the regressionsindicated that informational justice perceptions explain additional variance insatisfaction with pay level (2 per cent), raises (3 percent), and structure andadministration (3 per cent) beyond the other dimensions of distributive, procedural andinterpersonal justice perceptions. Additionally, we have argued that interpersonaljustice should not be rejected as a potential antecedent to pay-related outcomes. Whileinterpersonal justice was not related to satisfaction with raises, future research shoulduse items more salient to pay-related interpersonal interactions. In addition,interpersonal justice might serve as a moderator, such that it interacts withpay-related outcomes to influence intentions (e.g. turnover intentions) and behaviorsincluding positive (i.e. citizenship behaviors) and negative (i.e. counterproductivebehaviors) behaviors.

While this study used the well-established PSQ (Heneman and Schwab, 1985), recentresearch (Williams et al., 2002, 2007 and 2008) has focused renewed attention tomeasurement of both pay and benefit satisfaction. Williams et al. (2008) developed thecomprehensive compensation satisfaction questionnaire (CCSQ) that includesmeasurement of satisfaction with pay components as well as the processes andprocedures used to deliver benefits, a dimension not included in Heneman and Schwab’sPSQ. Just as the measurement of justice has evolved, development of the CCSQ suggestsit should play a major role in future compensation research.

Labor cost is often the single largest expense in most organizations. As competitivepressures continue to escalate, less money is available for compensationand compensation professionals have the daunting task of designing or redesigningcompensation systems most likely to attract, motivate and retain the best talent in orderto help the organization accomplish its goals and objectives. Results of our study have

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implications for compensation practice. First, results for distributive justice indicate thatpaying people fairly is associated with satisfaction with pay. This finding is informativeas previous research (Williams et al., 2006) shows that actual pay is only moderatelycorrelated (r ¼ 0.29) with pay level satisfaction. Second, results reiterate the importanceof procedural fairness. While designing fair procedures should be a goal in and of itself,using fair procedures is a relatively inexpensive approach to boosting satisfaction withbenefits, pay raises and pay structure and administration.

Third, our results for informational justice suggest organizations should trainmanagers to convey information regarding pay level, raises and pay policies toemployees in a clear, complete and timely manner. Such communication is likely toincrease pay satisfaction. This suggestion may be particularly salient that managersunderestimate the relative importance of compensation to workers SHRM, 2007b).According to SHRM, employees become concerned with pay when the organization failsto adjust to rising market rates or does not fairly apply internal pay policies. Employees’concerns regarding pay may be partly due to lack of understanding of how their paylevel is determined (SHRM, 2007a). Therefore, informational justice may be an importantfactor with respect to employees’ perceptions of pay fairness and hence, pay satisfaction.

Fairness is an important societal concern, and lack thereof, is likely to lead tofeelings of dissatisfaction and to perceptions of discrimination. Given that actual pay isonly modestly related to pay satisfaction, it is important to examine how fairnessperceptions relate to satisfaction. Our results indicate that fairness of decisions andprocedures relating to compensation matter and that communicating all of thisinformation in a clear, complete and timely manner is critical to ensuring satisfactionwith pay, benefits, raises and structure.

ConclusionThis study adds to the very small number of studies that have investigated the roles ofinteractional and informational justice as they relate to pay satisfaction (Williams et al.,2006). A unique contribution of this study is it uncovered that informational justicerelates to satisfaction with pay level, pay structure and administration and possibly payraises. The Williams et al. (2006) meta-analysis omitted interactional and informationaljustice due to lack of available studies. They concluded justice and pay satisfaction were“fruitful areas” for investigation as is evidenced by results of our study.

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About the authorsI.M. Jawahar (PhD, Oklahoma State University) is a Professor of Management and the Chairperson ofthe Department of Management and Quantitative Methods at Illinois State University. His primaryresearch interest areas include performance appraisal, fairness, citizenship and counterproductivebehaviors and stress. Jim’s research has appeared in journals including theAcademy ofManagementReview, Journal of Applied Psychology, Personnel Psychology, Journal of Labor Research, Journal ofManagement, and Human Relations. Jim is the Co-Editor of Career Development Internationaland has served on or serves on the Editorial Boards of several journals including the Journal ofManagement, Journal of Managerial Psychology, and Group and Organization Management.I.M. Jawahar is the corresponding author and can be contacted at: jimoham@ilstu.edu

Thomas H. Stone (PhD, University of Minnesota, I/O psychology) has been a Professor ofManagement at Oklahoma State University since 1989. He has also served on the faculties of theUniversity of Iowa, York and McMaster Universities in Ontario, Canada. His research spansseveral areas including performance appraisal, academic integrity, leadership, decisionmaking and absenteeism and has been published in the Journal of Applied Psychology, Academyof Management Review, Journal of Management, Journal of Vocational Behavior, LeadershipQuarterly, the Canadian Journal of Administrative Sciences and others. Tom has served asDivision Chair for both Human Resource Management and Organizational Behavior in theAdministrative Sciences Association of Canada and is the Associate Editor ofCareer DevelopmentInternational.

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