J REWARDS PERCEIVED FAIRNESS TRANSPARENCY AND … · 2018. 10. 26. · JUST REWARDS: PERCEIVED FAIRNESS, TRANSPARENCY AND EMPLOYEE REWARD SYSTEMS. Melinda Kim Laundon BA (Hons), MPP,

JUST REWARDS: PERCEIVED FAIRNESS,TRANSPARENCY AND EMPLOYEE REWARD

SYSTEMS

Melinda Kim Laundon BA (Hons), MPP, MMgt

Submitted in fulfilment of the requirements for the degree of

Doctor of Philosophy (PhD)

Principal Supervisor: Professor Abby Cathcart

Associate Supervisor: Professor Paula McDonald

School of Management

QUT Business School

Queensland University of Technology

2018

i

Keywords

Employee rewards, benefits, pay, compensation, HR systems, qualitative case studies, organisational justice, fairness, research impact, knowledge translation, pay transparency

ii

Abstract

Employee reward systems are fundamental to the employment relationship.

From an organisational perspective, reward systems are usually intended to attract and

retain the best employees and elicit desired levels of performance. Yet research

indicates negative outcomes for organisations and individuals if employees consider

reward systems to be unfair. Despite their centrality to perceptions of organisational

fairness and consequent outcomes, employee reward systems are under-conceptualised

in management literature. Additional difficulties arise in the study of reward because

it is a sensitive topic and some organisations expressly forbid staff to talk about their

pay.

This dissertation by published papers uses a qualitative, embedded case study

design to examine the dimensions of a reward system in a large Australian financial

and insurance services organisation, and how these dimensions influence the fairness

perceptions of employees at different hierarchical levels. Organisational justice was

used as the theoretical framework to guide the research. Data for the study were

obtained from semi-structured interviews with 32 employees of a large Australian

financial and insurances services company, internal and external organisational

documents, and a pre-existing dataset from an organisation-wide survey of employee

benefits undertaken by the case organisation (n=5,084).

This dissertation addresses gaps in knowledge of reward systems across four

studies, collectively identifying the dimensions of reward systems that influence

employee fairness perceptions, the types of fairness perceptions employees at various

levels hold about reward, and re-conceptualising pay transparency (a key characteristic

of reward systems).

Considered together, these studies present a body of research that contributes to

the employment relations, management, and human resource management fields of

research by revealing new findings about under-studied aspects of the employment

relationship. Overall, the thesis has a number of significant theoretical and practical

applications. This thesis makes an original contribution to knowledge by firstly

providing detailed insights into the specific dimensions of a reward system that

influence employee fairness perceptions, and detailing the type and source of

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organisational justice judgements about reward systems. Secondly, this research

identifies pay transparency as an important concept influencing organisational fairness

perceptions and demonstrates how the concept may be conceptualised and studied in

a richer way. In this thesis, the principles of knowledge translation theory are used as

tools to plan for and enhance the contribution and impact of this research beyond

academia. This novel approach to planning for research impact and engagement

outside academia represents a new way of applying knowledge translation

methodology.

The practical implications of this thesis are significant. The research provides

valuable insights into the fairness implications of reward and identifies a detailed range

of reward issues of importance to employees. The implications for organisations, HR

managers, and reward managers include rich insights to inform the design and

management of reward systems to maximise fairness perceptions amongst employees.

Care has been taken to make these insights accessible and understandable to

stakeholders outside academia through the use of research dissemination and research

engagement activities.

iv

Table of Contents

Keywords..............................................................................................................................i

Abstract ...............................................................................................................................ii

Table of Contents ................................................................................................................ iv

List of Figures ..................................................................................................................... vi

List of Tables ..................................................................................................................... vii

List of Abbreviations.........................................................................................................viii

Statement of Original Authorship ........................................................................................ ix

Publications and Manuscripts ............................................................................................... x

Research Engagement and Dissemination ............................................................................ xi

Acknowledgements ...........................................................................................................xiii

Introduction ......................................................................................... 1 1.1 Background to the research ........................................................................................ 1

1.2 Research approach and objectives............................................................................... 4

1.3 Significance, Scope and Definitions ........................................................................... 7

1.4 Thesis Outline .......................................................................................................... 10

Literature Review .............................................................................. 15 2.1 Employee reward ..................................................................................................... 15

2.2 Organisational inequity ............................................................................................ 25

2.3 Pay transparency ...................................................................................................... 26

2.4 Knowledge translation theory ................................................................................... 28

2.5 Theoretical Framework ............................................................................................ 29

2.6 Fairness in the workplace: Organisational justice and the employment relationship ... 31

2.7 literature review summary and implications .............................................................. 56

Research Design ................................................................................. 57 3.1 Methodology and research design ............................................................................. 57

3.2 The case organisation ............................................................................................... 62

3.3 Participants .............................................................................................................. 65

3.4 Instruments and data sources .................................................................................... 70

3.5 Procedure and Timeline ............................................................................................ 73

3.6 Analysis ................................................................................................................... 74

3.7 Research engagement and dissemination .................................................................. 77

3.8 Ethics and Limitations .............................................................................................. 80

v

Just Rewards: Fairness Perceptions of Employee Reward Systems ....................................................................................................... 83

4.1 Research outlets ....................................................................................................... 83

4.2 Published conference paper ...................................................................................... 84

4.3 Extended findings and discussion ............................................................................. 93

Just Benefits? Employee Benefits and Organisational Justice ....... 104 5.1 Research outlets ..................................................................................................... 104

5.2 Co-author contribution statement ............................................................................ 105

5.3 Accepted journal article .......................................................................................... 105

Flexible Work: Barrier to Benefits? ................................................ 131 6.1 Research outlets ..................................................................................................... 131


6.3 Published journal article ......................................................................................... 133

Fair but Not Transparent: New Perspectives on Pay Transparency ..................................................................................................... 152

7.1 Research outlets ..................................................................................................... 152


7.3 Submitted manuscript ............................................................................................. 154

Discussion and Conclusions ............................................................. 180 8.1 Research objectives and approach........................................................................... 180

8.2 Overarching research findings ................................................................................ 181

8.3 Theoretical contribution ......................................................................................... 184

8.4 Knowledge translation ............................................................................................ 185

8.5 Study limitations and future research agenda .......................................................... 188

8.6 Conclusions ........................................................................................................... 190

References ........................................................................................................... 192 Appendices .......................................................................................................... 217

vi

List of Figures

Chapter 1

Figure 1.1. Research overview ................................................................................ 6

Figure 1.2. Thesis outline ...................................................................................... 11

Chapter 4

Figure 4.1. Organisational justice dimensions applied to a reward system .............. 95

Chapter 6

Figure 1. Benefits understanding by gender……………..………………...………121

Figure 2. Benefits understanding by employment type…..…………………...…...122

Figure 3. Benefits understanding by working location........................................…...123

Chapter 7

Figure 7.1. Dimensions shaping pay transparency ............................................. ....172

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List of Tables

Chapter 1 Table 1.1: Key concepts .......................................................................................... 10

Chapter 2 Table 2.1: Fairness in the workplace statement of author contribution .................. 32

Table 1: Organisational justice dimensions ................................................................ 37

Chapter 3 Table 3.1: Case study design ................................................................................... 61 Table 3.2: Interview sample groups ......................................................................... 68

Table 3.3: Interview participant demographic data .................................................. 69 Table 3.4: Just Benefits code book excerpt .............................................................. 76

Table 3.5: Research engagement and dissemination strategy ..................................... 79

Chapter 4 Table 1: Interview participants ................................................................................ 89

Chapter 5 Table 5.1: Just Benefits statement of author contribution ....................................... 105 Table 1: Benefits offered by FinCo…………………………………………….......112 Table 2: Survey sample demographic characteristics ............................................. 115

Chapter 6 Table 1: Flexible work: Barrier to Benefits? statement of author contribution ....... 133 Table 2: Descriptive Statistics………………………………………........................116

Table 3: Independent samples t-tests……………………………………………......120

Chapter 7 Table 1: Fair but not transparent: statement of author contribution ...................... 154

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List of Abbreviations

ABDC Australian Business Deans Council

ABS Australian Bureau of Statistics

AIRAANZ Association of Industrial Relations Academics of Australia

and New Zealand

ANZAM Australian and New Zealand Academy of Management

APRA Australian Prudential Regulation Authority

BAM British Academy of Management

CIPD Chartered Institute of Personnel and Development

ER Employment relations

FWA Flexible work arrangements

HPWS High performance work systems

HR Human resources

HRM Human resource management

OECD Organisation for Economic Co-operation and Development

QUT Queensland University of Technology

RQ Research question

SHRM Strategic human resource management

WGEA Workplace Gender Equality Agency

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Statement of Original Authorship

The work contained in this thesis has not been previously submitted to meet

requirements for an award at this or any other higher education institution. To the best

of my knowledge and belief, the thesis contains no material previously published or

written by another person except where due reference is made.

Signature:

Date: October 2018

QUT Verified Signature

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Publications and Manuscripts

The following scholarly publications and manuscripts emerged from this PhD program of research:

Refereed journal articles

Laundon, M., & Williams, P. (2018) Flexible work: barrier to benefits? Financial Planning Research Journal, 4(2).

Laundon, M., Cathcart, A., & McDonald, P. (In press). Just benefits? Organisational justice and employee benefits. Employee Relations. Accepted for publication 3 October 2018.

Manuscripts submitted to refereed journals

Laundon, M., Cathcart, A., & McDonald, P. (Submitted manuscript). Fair but not transparent? New perspectives on pay transparency. Submitted to Socio-Economic Review May 2018.

Book chapters

Laundon, M., McDonald, P., Cathcart, A. (forthcoming 2019). Fairness at work: organisational justice and the employment relationship. To be published in Townsend, K, Cafferkey, K, Dundon, T. and McDermott, A. (Eds.) Elgar Introduction to Theories of Human Resources and Employment Relations, Cheltenham: Edward Elgar Publishing. Accepted for publication 20 February 2018.

Conference papers (full paper refereed)

Laundon, M. (2016, December 7). Just benefits: Perceived fairness of employee benefits in a large finance organisation. Paper presented at the 30th Annual Australian and New Zealand Academy of Management (ANZAM) Conference. Queensland University of Technology, Brisbane.

Laundon, M. (2017, September 6). Just rewards: Fairness perceptions of employee reward systems. Paper presented at and published in the Proceedings of the 31st Annual Conference of the British Academy of Management (BAM). University of Warwick, Coventry.

Conference papers (abstract refereed)

Laundon, M. (2017, February 10). Pay transparency characteristics of a large finance organisation. Paper presented at the Association of Industrial Relations Academics of Australia and New Zealand (AIRAANZ) 2017 Conference. QT Hotel, Canberra.

xi

Research Engagement and Dissemination

The following research engagement and dissemination activities were undertaken as part of this PhD program of research:

Public seminars

Williams, P., & Laundon, M. (2016, September 27). Paying for it? Flexibility as reward. 50 Years On, Women and Work: Celebrating the lifting of the Marriage Bar. Public seminar at Old Government House, Brisbane.

Williams, P., & Laundon, M. (2017, February 28). Flexibility as reward: the trade-off between flexibility and compensation. Workshop in Equality, Diversity, and Gender in Employment. Centre for Work, Organisation and Wellbeing, Griffith University Nathan Campus, Brisbane.

Research seminars

Laundon, M. (2017, September 11). Paying for it: Flexibility as reward. Research seminar at Queen Mary University Business School, Queen Mary University, London.

Online articles

Laundon, M. (2017, December 18). PhD students should be taught more about research impact and engagement. Impact of the Social Sciences, The London School of Economics and Political Science, http://blogs.lse.ac.uk/impactofsocialsciences/2017/12/18/phd-students-should-be-taught-more-about-research-impact-and-engagement/

Media interviews

Laundon, M. and Williams, P. (2016, November 11). Radio 4EB Women’s Profile. Interview by N. Garioud and K. MacKenzie [Radio broadcast]. Brisbane: Radio 4EB.

Management practitioner engagement

2016-2018 – Regular reports to case study organisation, outlining relevant insights from the PhD research to organisational management and reward managers.

2018 – Summary report to interview participants, outlining relevant research findings for employees.

Laundon, M. and Williams, P. (September 2018). Is flexibility a barrier to benefits? Money and Life: the monthly magazine of the Financial Planning Association of Australia. https://fpa.com.au/about/financial-planning-magazine/

http://blogs.lse.ac.uk/impactofsocialsciences/2017/12/18/phd-students-should-be-taught-more-about-research-impact-and-engagement/http://blogs.lse.ac.uk/impactofsocialsciences/2017/12/18/phd-students-should-be-taught-more-about-research-impact-and-engagement/

xii

Guest lectures

Laundon, M. (2017, May 16). Case study of the reward system in a large Australian financial and insurance services organisation. Guest lecture to final year Human Resource Management students, unit MGB339: Performance and Reward. QUT, Brisbane. (Repeated May 17, 2017).

Laundon, M. (2017, October 16). Impact for Higher Degree Research students. Guest lecture to QUT Business School PhD, MPhil and Honours students, unit BSN502: Research Methodology. QUT, Brisbane. (Repeated May 14, 2018).

Laundon, M. (2018, April 5). Just rewards. Virtual guest lecture to managers from the Australian Public Service enrolled in the Graduate Certificate of Public Sector Management, unit GSZ432: Organisational Behaviour. QUT, Brisbane.

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Acknowledgements

I am grateful to my supervisors, Professor Abby Cathcart and Professor Paula

McDonald, whose constant support, mentoring, and interest in my future plans

consistently exceeded my expectations. Their example made me believe it is possible

to effect positive change through organisational research.

My HDR student cohort at QUT Business School provided great friendship and

camaraderie. My virtual PhD cohort, the PhD and Early Career Researcher Parents

Facebook group, provided inspiration, encouragement, and understanding of the

challenges of balancing PhD studies with a young family.

A special thank you goes to Dr Penny Williams, who started by facilitating

access to my case organisation and continued by providing a steady source of coffee,

discussion and advice that sustained me.

I would like to thank the organisation that was the subject of this research. In

particular, my thanks go to the benefits manager who facilitated access to survey data

and interview participants. I am also grateful to the interview participants, who were

generous with their time and their honest responses to my many questions.

This research was supported by an Australian Government Research Training

Program (RTP) Scholarship.

Professional editor, Kylie Morris, provided copyediting and proofreading

services, according to the guidelines laid out in the university-endorsed national

“Guidelines for editing research theses”. My brother Ty also devoted a lot of time to

proofreading.

Finally, and most importantly, I’d like to thank my family and friends for their

assistance, support and endless patience with my busyness and distraction for the past

several years. I couldn’t have done this without your help. Thank you! To my husband

Ben and my children, Mitchell and Alyssa – thanks for always being there. I love you.

Chapter 1: Introduction 1

Introduction

This chapter outlines the background, context, and purpose of this research and

explains the theoretical framework informing the study. The chapter also describes the

significance and scope of the research and provides definitions for the key terms used.

Finally, it includes an outline of the remaining chapters of the thesis. As this thesis by

published papers contains scholarly book chapters, journal articles and conference

papers, the chapter outline includes details of the scholarly research outlets to which

manuscripts have been submitted and the status of the submissions.

1.1 BACKGROUND TO THE RESEARCH

The research explored in this dissertation is based on a case study of the

employee reward system in a large Australian financial and insurance services

organisation. Employee reward systems are fundamental to the employee-organisation

relationship. The objectives of a reward system are conventionally expressed as

attracting and retaining appropriate employees and aligning employee performance

with organisational strategy (Armstrong, 2012; Shields et al., 2016).

Employee rewards are defined as all financial and non-financial rewards offered

to an employee in exchange for their work, for example, benefits, base pay,

performance-linked remuneration, performance-linked non-financial rewards, and

recognition (Shields et al., 2016). An employee reward system has three dimensions—

the rewards themselves, formal reward management policies, and reward allocation

practices, which include the implicit understandings, practices, and social exchanges

that influence how the system works in practice.

Managerial emphasis on reward management is reflected in the large volume of

practitioner-focused, instrumental literature covering issues such as reward system

design, optimal reward mix, and reward communication. This attention is not matched

in academic literature, which often treats reward systems as part of the “bundle” of

human resources components essential to establish commitment in a high performance

workplace (Becker & Gerhart, 1996; Delery & Doty, 1996; Huselid, 1995; Huselid,

Jackson, & Schuler, 1997). This approach has led to a focus on broad human resource


(HR) systems and strategies, while failing to address the specific components of high

performance strategies, such as pay and reward (Delery, 1998; Jiang et al., 2012). The

result has been a dearth of in-depth analysis of employee reward systems in a real

organisational context and a resulting lack of scholarly research to inform reward

management practice (Deadrick & Gibson, 2007).

Since reward systems govern the distribution of rewards within an organisation,

they are also central to perceptions of fairness (or organisational justice). There is a

strong theoretical basis in the organisational justice literature showing that employee

perceptions of fairness have implications for job performance, turnover, social

relations at work, and organisational performance (as demonstrated in meta-analyses

by Cohen-Charash & Spector, 2001; Colquitt, Conlon, Wesson, Porter, & Ng, 2001)

Therefore, fairness perceptions may influence an organisation’s ability to use its

reward system to attract, retain, and drive employee performance.

Research suggests that fairness perceptions are closely linked with pay

transparency—the extent to which employees are aware of each other’s pay and reward

levels and the extent of information available to employees regarding reward

allocation outcomes, procedures, and practices (e.g., Bamberger & Belogolovsky,

2010; Hartmann & Slapničar, 2012). Although many large organisations use pay

confidentiality clauses in employment contracts to prevent employees from discussing

their pay details with their colleagues, some jurisdictions have made moves to abolish

pay secrecy clauses imposed on employees, in the belief that greater transparency may

lead to more positive fairness perceptions (and perhaps fairer reward outcomes). For

example, the UK Equality Act 2010, US Executive Order 13665 (2014), and a 2015

private member’s bill introduced to Australian parliament (Gender Pay Gap Bill 2015

(Cth)) all aimed to proscribe pay confidentiality clauses, with the primary rationale

stated as the potential for pay transparency to reduce gender pay gaps (Government

Equalities Office, 2016). These policy initiatives were also driven by increasing calls

in society for transparency of executive-level pay since the global financial crisis

(Connelly, Haynes, Tihanyi, Gamache, & Devers, 2013; Core & Guay, 2010).

Although executive level pay has come under increasing scrutiny since the global

financial crisis, non-executive remuneration has not received the same attention and is

not usually subject to the same transparency requirements. Despite growing regulatory

action on this issue, academic pay transparency literature is relatively under-developed


and has usually been examined at a whole-of-organisation level rather than in relation

to various dimensions of a reward system (without recognising, for example, that base

salary ranges are usually more transparent than performance-related bonus details)

(Marasi & Bennett, 2016).

While fairness perceptions may not always align with actual equity or inequity,

employee reward systems do determine the degree of pay dispersion (the difference in

remuneration between the highest and lowest paid employees) in an organisation. For

example, recent Australian data show that pay dispersion is higher where there is a

significant discretionary component to income, such as performance-based pay or

bonuses and in industries with a lack of pay transparency (Australian Bureau of

Statistics [ABS], 2017b). The government sector, which has a transparent salary band

structure, shows much lower pay dispersion than other industries (ABS, 2017b). The

Australian financial services and insurance industry has comparatively high pay

dispersion and the largest gender pay gap of any Australian industry (26.1 per cent

compared to the national average of 15.3 per cent) (Workplace Gender Equality

Agency [WGEA], 2018). This gap is even higher when non-salary aspects of reward

(such as bonuses and benefits) are taken into account (WGEA, 2017). Flexible work

arrangements, widely offered in the finance industry (WGEA, 2016b), are explicitly

framed as an employee benefit by the case study organisation and are therefore

considered part of a reward system. Flexible work has also been shown to have wage-

inhibiting implications for women in particular as the primary users of flexibility in

the finance sector (Noback et al., 2016). Reward systems in this industry are therefore

expected to feature large reward differentials, a complex range of performance-

contingent and non-performance contingent rewards, and varying transparency levels

regarding reward allocation. Accordingly, an Australian financial company is an ideal

choice for a case study organisation to examine an employee reward system through

an organisational justice lens. The research setting, a large financial and insurance

services organisation, is discussed in detail in Section 3.2. The case organisation was

selected due to its well-established, multi-faceted employee reward system, and the

opportunities it provides to explore such a system through multiple levels of analysis.

This dissertation utilises an embedded case study design to examine the

perceived fairness of a reward system in a large Australian financial and insurance

services organisation through the lens of organisational justice theory. The design is a


single case (the reward system of the organisation) with embedded units, those being

different dimensions of the reward system (specifically, benefits, rewards, and pay

transparency). The embedded case study design, focusing analysis on specific sub-

units of a system, allows for the detailed examination of a system (Yin, 2013).

Perceived fairness is examined in relation to the distribution of rewards, rewards

procedures, interpersonal interactions regarding rewards, and the rationale provided

by the organisation regarding reward policies, procedures, and outcomes. This thesis

expands work in the fields of employee reward management, organisational justice,

and pay transparency by contributing to understanding of how reward systems operate,

how they are perceived, their transparency characteristics, and the implications for

reward system design and management.

1.2 RESEARCH APPROACH AND OBJECTIVES

This section delineates the purpose, aims, and objectives of this PhD program of

research. It also provides an overview of the approach to the research and the research

questions.

1.2.1 Research objectives

The primary objective of this study was to address the gaps in current reward

management, pay transparency, and organisational justice literature (discussed in

Chapter 2) by identifying specific dimensions of a reward management system that

have fairness implications and that influence the four distinct types of organisational

justice perceptions (procedural, distributive, interactional, and informational). This

was achieved through a detailed exploration of the components and complex dynamics

that comprise an employee reward system in a large Australian finance and insurance

services organisation and the implications of the reward system for employees’

organisational justice perceptions. In relation to pay transparency, the objective was to

improve conceptual clarity about this important aspect of the employment relationship

and develop a more nuanced understanding of how organisational pay transparency

and is facilitated or constrained by employee perceptions. Incorporating both base-

level employee and management perspectives into the research design was an

objective designed to address the emphasis in extant research of reward strategy,

practice, and research on executive level workers.


The practical aims were firstly, to explicitly apply knowledge translation theory

to plan for, produce, and disseminate evidence-based research about a reward system;

and secondly, to ensure that the research findings would reach the relevant

management practitioner audiences via the dissemination and engagement strategy

outlined in Section 3.7.

1.2.2 Research approach and questions

Reward and compensation as a whole are an under-researched and under-

theorised field (Gupta & Shaw, 2014), providing the justification for a qualitative

approach. The nascent stage of extant research and the need for a detailed

understanding of a complex system within its organisational context led to the

development of the embedded case study design described in Chapter 3 (Edmondson

& McManus, 2007; Yin, 2013). The fairness perceptions of employees in a wide

variety of roles and at different pay levels were examined in relation to the distribution

of rewards (distributive justice), reward procedures (procedural justice), reward

transparency, interpersonal interactions regarding rewards (interpersonal justice), and

the rationale provided by the organisation and managers regarding reward policies,

procedures, and outcomes (informational justice).

Transparency is a key theme running throughout this body of research. It was

identified in the study in Chapter 5 as a key dimension influencing employees’ fairness

perceptions of employee benefits and also emerged in interviews with employees in

relation to fairness perceptions of the broader reward system (as discussed in Chapter

4). The research approach utilised knowledge translation and research engagement

principles to ensure that the relevant findings could be communicated to stakeholders

both within and outside the academy. As the PhD candidate was the beneficiary of

publicly funded research training with an obligation to maximise the potential benefits

of the research, a deliberate strategy was adopted to design the program of research

according to knowledge translation principles (see Section 2.4) and disseminate the

research findings to relevant stakeholders via suitable scholarly and public outlets

(Laundon, 2017). This rationale underpins the decision to pursue a PhD by published

papers and to undertake the various research dissemination and engagement activities

outlined in Section 3.7 and on page xii.

As discussed in Section 3.1, the ontological basis for this research is critical

realism, as employee reward systems comprise both formal policies and often hidden


social exchanges that influence how the system is implemented and operates in

practice (Fleetwood & Ackroyd, 2004). An inductive, qualitative embedded case study

drawing on interviews, survey, and documentary data sources, was selected as the most

appropriate way to illuminate the complexities, practices, and interactions associated

with reward systems.

The overall research approach is illustrated in Figure 1.1. The two inner circles

represent the reward system, while pay transparency and fairness perceptions are

shown as characteristics overlaying the entire reward system.

Figure 1.1. Research overview

The research questions that guided the study are structured from broad to specific

levels. The two overarching research questions were : How do the reward components,

reward policies and reward allocation practices operate within a reward system?

(RQ1) and How do the dimensions of a reward system influence employee fairness

perceptions? (RQ2). These overarching questions guided the studies presented in

Chapters 4, 5, 6, and 7, which investigated specific aspects and characteristics of the

reward system. Sub-research question 2.1 (RQ2.1); How do the dimensions of a

reward system influence the fairness perceptions of employees at various levels?,

guided the study in Chapter 4, comparing reward fairness perceptions across different

cohorts of employees. Sub-research question 2.2 (RQ2.2); How do the dimensions of

a benefits system influence employee fairness perceptions?, investigated fairness

perceptions of a particular segment of reward (employee benefits—Chapter 5). Sub-

research question 2.3 (RQ2.3): Is the utilisation of flexible work arrangements


associated with lower understanding of employee benefits?, guided the study in

Chapter 6. The study provides an analysis of a specific benefit (flexible work) within

the broader benefits system, and is aimed at understanding perceptions of benefits and

consequent fairness implications. Sub-research question 2.4 (RQ2.4); How do the

dimensions of a reward system facilitate or constrain organisational pay

transparency?, investigated pay transparency as an overarching dimension of reward

(Chapter 7).

1.3 SIGNIFICANCE, SCOPE AND DEFINITIONS

1.3.1 Theoretical and Practical Significance

The specific contributions of each study are outlined within the manuscripts

presented in Chapters 4–7 and the overarching contribution is detailed in Chapter 8. In

summary, the overall contribution of this research is firstly to extend current literature

by providing detailed insights into how the dimensions of a reward system are related

to employee fairness perceptions. Secondly, the research extends knowledge of how

two under-examined components of organisational justice theory—interpersonal and

informational justice—operate in an organisational context and specifically in relation

to the empirical focus of reward. This research also extends the limited pay

transparency literature, in particular providing conceptual clarity via the development

of a typology of the transparency characteristics of a reward system which is based on

empirical data from the case organisation.

Though reward management systems are designed to improve performance, they

can result in unintended outcomes, such as implications for social relations at work,

negative outcomes for employees, and organisational inequity if poorly designed or

poorly implemented. The existing reward management literature is overwhelmingly

uncritical and heavily weighted towards practitioner-focused grey literature, the bulk

of which is published in non-peer reviewed books and journals or professional

association publications. This reliance on “received wisdom” (Corby, Palmer, &

Lindop, 2009), along with the gap in organisational knowledge of and take-up of the

findings from academic studies means that reward management practice is seldom

based on scholarly research (Deadrick & Gibson, 2007; Deadrick & Gibson, 2009;

Gill, 2017; Spyridonidis, Currie, Heusinkveld, Strauss, & Sturdy, 2016; Sturdy, 2004).

The research engagement and research dissemination activities outlined in Section 3.7


were planned to ensure that relevant research findings were disseminated to managers

and reward management practitioners, both inside the case study organisation and

more broadly. The practical contribution of this research is to provide organisations,

line managers and reward managers with evidence-based insights into how various

dimensions of reward systems may influence fairness perceptions, and how reward

systems may be designed and managed to improve fairness perceptions. It may also

benefit employees, particularly those in the case organisation but also more broadly,

by informing the organisations and managers who design and implement reward

systems. Through a systematic analysis and presentation of employee views of reward

systems, this research challenges preconceived views of how employees think about

reward systems and counters the common focus on organisational imperatives driving

reward systems.

1.3.2 Scope

The current study defines “employee reward” as the package of financial and

non-financial rewards offered to employees. This includes the suite of benefits, base

level pay, performance-linked pay, and non-financial rewards and recognition that an

organisation offers its employees. Some academic and practitioner conceptualisations

of “total reward” include indirect rewards not explicitly offered to employees by the

organisation (such as job challenge, autonomy, task variety, job security, or

organisational culture) (Chartered Institute of Personnel and Development [CIPD],

2015b; Fuehrer, 1994; Kao & Kantor, 2004; Shields et al., 2016). These indirect types

of rewards are outside the scope of this research because they can vary significantly

within and between organisations and they were neither defined as rewards by the case

organisation, nor explicitly or consistently offered to employees as a form of reward.

The rewards explicitly offered by the case organisation, which were therefore included

in the study (e.g., bonuses, special leave arrangements, and flexible work

arrangements) are specified in Section 3.2. Performance management systems,

practices, and processes are also outside the scope of this research, except in relation

to how performance management influences reward allocation and associated fairness

perceptions.

1.3.3 Definitions

This section defines the concepts central to the research. A reward system is

taken to comprise three dimensions: an organisation’s suite of employee rewards


(reward components), formal reward policies and procedures (reward policies), and

the informal practices and social exchanges that govern and influence reward

allocation (reward allocation practices) (Armstrong, 2012).

For the purposes of this research, employee rewards are defined as all financial

and non-financial rewards offered to an employee in exchange for their work (Shields

et al., 2016). The study conceptualises employee reward components as incorporating

base level pay and benefits, as well as financial rewards (e.g., bonuses) and non-

financial rewards (e.g., recognition) that are distributed on the basis of individual and

team performance. Benefits are a type of non-cash reward that contribute to the overall

value of individual employees’ total remuneration, which may include paid leave,

study assistance, flexible work arrangements, and health and wellbeing programs.

Organisational justice is defined as the perceived fairness of an organisation and

Colquitt’s (2001) conceptualisation of a four-dimensional organisational justice

framework provided the theoretical framework for this research. It incorporates

distributive justice, or the perceived fairness of reward distribution (J. Adams, 1963);

procedural justice, or the perceived fairness of reward distribution procedures (Thibaut

& Walker, 1975); interpersonal justice, or the perceived fairness of interpersonal

interactions regarding reward (Greenberg & Cropanzano, 1993); and informational

justice, or the perceived fairness of the rationale provided regarding reward policies,

procedures, and outcomes (Greenberg & Cropanzano, 1993).

Pay transparency (also referred to as reward transparency) is defined as the

extent to which employees are aware of each other’s pay and reward levels and the

extent of information available to employees regarding reward allocation outcomes,

procedures, and practices (Hartmann & Slapničar, 2012). Pay transparency

characteristics include the level, type, and source of available information for each

component of the reward system, reporting requirements, reward communication

strategies and mechanisms, and pay secrecy requirements or norms.

The definitions of key terms are provided in Table 1.1 below.


Table 1.1: Key concepts

Concept Definition

Employee reward system

An organisation’s reward components, reward policies and reward allocation practices.

Employee rewards Financial and non-financial rewards offered to an employee in exchange for their work (Shields et al., 2016)

Employee benefits A segment of employee rewards that includes all non-wage and non-performance dependent rewards (ABS, 2013a; Bureau of Labor Statistics, 2015)

Pay transparency The extent of information available to employees regarding reward allocation outcomes, procedures, and practices (Hartmann & Slapničar, 2012)

Organisational justice The perceived fairness of an organisation (Colquitt, 2001)

Distributive justice The perceived fairness of reward distribution (J. Adams, 1963)

Procedural justice The perceived fairness of reward-related policies and procedures (Thibaut & Walker, 1975)

Interpersonal justice The perceived fairness of interpersonal interactions relating to reward (Greenberg & Cropanzano, 1993)

Informational justice The perceived fairness of the information provided about reward policies, practices and outcomes (Greenberg & Cropanzano, 1993)

1.4 THESIS OUTLINE

This PhD Thesis by Published Papers comprises four related studies and four

overarching chapters, including the introduction, literature review, methods, and

discussion and conclusion. QUT Thesis by Published Papers Guidelines require a

minimum of three published and/or submitted papers to be presented, where at least

one paper must be published, in press or accepted for publication by the time the thesis

is lodged for examination. This thesis contains five papers: one accepted scholarly

book chapter, one published journal article, one accepted journal article, one published

conference paper, and one manuscript that has been submitted to a scholarly journal.

Aligned with the objectives of the PhD program with respect to research

engagement and dissemination (see Section 1.2.1), the studies contained in Chapters

4, 5, 6, and 7 are presented in the form of research articles. Scholarly, practitioner and


public outlets for the research are described and a rationale for the selection of each

research outlet is provided at the beginning of each relevant chapter. A list of all

scholarly outlets for the research reported in this dissertation is provided on page xi. A

list of all public and industry research engagement activities undertaken during the

course of this PhD program is provided on page xii.

Figure 1.2. Thesis outline

• IntroductionChapter 1

• Literature review• Fairness in the workplace: Organisational justice and the employment relationship (Accepted book chapter)

Chapter 2

• Research designChapter 3

•Just Rewards: Fairness perceptions of employee reward systems (published conference paper)

Chapter 4

•Just Benefits? Employee benefits and organisational justice (accepted journal article)

Chapter 5

•Flexible work: barrier to benefits? (published journal article) Chapter 6

• Fair but not transparent? New perspectives on pay transparency (submitted journal article)

Chapter 7

• Discussion and conclusionsChapter 8


Chapter 1 outlines the background, context, and purpose of this research and

explains the theoretical framework informing the study. It also describes the

significance and scope of the research and provides definitions of the key terms used.

Chapter 2 provides a broad review of relevant literature, discusses the

theoretical framework for the research and explains the theoretical relevance of

organisational justice to employee reward. Chapter 2 also contains the first manuscript

in this thesis: a scholarly book chapter accepted for publication in the forthcoming

edited volume, Elgar Introduction to Theories of Human Resources and Employment

Relations. This manuscript outlines the development of organisational justice theory,

how the theory attempts to explain and predict matters that relate to the employment

relationship, and scope for future development of the theory.

Chapter 3 outlines the ontological underpinnings of the research, the

overarching case study methodology, the approach to knowledge translation, and the

research design.

Chapter 4, “Just Rewards? Fairness perceptions of employee rewards in a large

finance company”, investigates employee fairness perceptions of the reward system.

The paper was published in the proceedings of the British Academy of Management

2017 Conference. This paper addresses RQ2.3: How do the dimensions of a reward

system influence the fairness perceptions of employees at various levels?

Chapter 5 contains the first of two studies based on a specific segment of the

reward system: employee benefits. The study, “Just benefits? Organisational justice

and employee benefits”, was accepted for publication in Employee Relations in

October 2018. This paper addresses RQ2.2: How do the dimensions of a benefits

system influence employee fairness perceptions? It identifies three dimensions of the

case organisation’s benefits system that influence employees’ organisational justice

perceptions.

Chapter 6 contains the second benefits-related study. Addressing RQ2.3, Is the

utilisation of flexible work arrangements associated with lower understanding of

employee benefits?, this study examines perceptions of benefits and the fairness

implications for users of a particular benefit (flexible work) in regard to understanding

other benefits. “Flexible work: Barrier to benefits?” was published in the Financial


Planning Research Journal, a scholarly journal with a combined academic and

financial planner audience, in October 2018.

Chapter 7 contains a study into pay transparency, which is an overarching

characteristic of reward systems. The study, “Fair but not transparent? New

perspectives on pay transparency”, has been submitted to Socio-Economic Review. The

study addresses RQ2.4: How do the dimensions of a reward system facilitate or

constrain organisational pay transparency? It proposes a new typology identifying

the dimensions that shape organisational pay transparency, including employee

perceptions of pay transparency.

Chapter 8 presents the findings from the studies in an overarching discussion

and summary of the contributions of this body of research. It concludes with a

discussion of the limitations of the study and possible directions for future research.

Note: The manuscripts presented in this thesis appear in the format and style

conventions of the identified research outlets. Accordingly, there are some differences

in referencing, formatting and spelling conventions between chapters.

Chapter 2: Literature Review 15

Literature Review

This chapter begins with a review of employee reward literature, including

prominent approaches, themes, and research into particular reward components and

issues (Section 2.1). The studies in Chapters 4–7 are presented in conventional journal

article format, and reviews of specific aspects of the literature are therefore contained

within those chapters. Although this chapter primarily reviews the scholarly literature,

Section 2.1 also contains an overview of the relevant “grey literature” (non-peer

reviewed literature) produced by and for reward management practitioners. The

organisational inequity literature is outlined in Section 2.2 and Section 2.3 canvasses

pay transparency research. This is followed by a discussion of relevant principles of

research engagement and knowledge translation theory in Section 2.4. Section 2.5

discusses the theoretical framework for the research. Section 2.6 presents the first

manuscript arising from this research—a scholarly book chapter that reviews

organisational justice literature. The chapter concludes with a discussion of the

implications of the literature for the research (Section 2.7).

2.1 EMPLOYEE REWARD

Employee reward, the package of financial and non-financial rewards offered to

employees by their employer in return for their work, includes benefits, base pay,

performance linked pay, and other rewards and recognition. Employee reward systems

may be understood as a way for organisations to influence the employee side of the

work bargain or reduce the transaction costs associated with customising rewards to

each employee (Corby et al., 2009). They are also an important means through which

organisations formally link their strategic goals to employee performance and the

allocation of rewards to staff (Armstrong, Brown, & Reilly, 2011). Informal aspects

of reward systems include undocumented practices that diverge from policy and the

inevitable complexities that arise from social exchanges. Implicit agreements,

understandings, and practices overlay formal reward and recognition management

systems.

Reward management subjects are a staple of universities’ MBA and

undergraduate business course offerings. Despite this, the body of literature explicitly


addressing reward management is small, mostly uncritical, and largely characterised

by positive evaluations, such as “reward delivers performance” (Armstrong, 2012).

There is also a swathe of practitioner-focused literature expounding the benefits of

reward management, much of which has been produced by influential professional

bodies or remuneration consulting firms, published in non-peer reviewed outlets, and

dominated by textbooks and management books with an instructional focus. In their

2007 analysis of the gaps between academic HR research and practitioner interests,

Deadrick and Gibson found the largest gap existed in the area of compensation and

benefits. However, this gap is not restricted to divergent interests, with a 2002 survey-

based study of more than 5,000 HR professionals by Rynes, Colbert, and Brown

finding significant discrepancies between the beliefs of HR managers about what

worked in practice and the findings of relevant scholarly studies. Others have also

lamented the gap between organisation studies research and management and HR

practice, noting the lack of evidence-based practice and the problems associated with

academics engaging with and disseminating relevant research findings to be

implemented in organisations (Gill, 2017; Nicolai & Seidl, 2010; Rynes, Giluk, &

Brown, 2007).

This review addresses the different disciplinary approaches to, and key debates

in, employee reward research, the role of practitioner-focused literature, and literature

relating to the various components of employee reward systems.

2.1.1 Approaches to employee reward research

Contemporary reward management literature has its historical foundations in

Chester Barnard’s (1938) Functions of the Executive, which discusses the concept of

an “inducement-contribution balance”. This relates to the nature and timing of rewards

offered in return for an individual’s contribution to an organisation (Barnard, 1938).

The reward management concept was further developed in March and Simon’s (1958)

Organizations, where they focused on using reward as a stimulus to evoke desired

behaviours and performance in employees. More recent research regarding employee

reward has emerged from a variety of disciplines, including strategic human resources

management (SHRM), organisational psychology, and industrial relations.

The majority of employee reward management studies are located in the SHRM

literature. These SHRM studies often focus on reward as part of the bundle of HR

initiatives designed to align employee performance with organisational objectives and


attract and retain appropriate staff. SHRM reward literature is examined in more detail

in the following section.

Industrial relations (IR) literature addressing reward typically focuses on

remuneration-related issues such as wage setting, collective bargaining, and

performance management as sources of conflict in organisations. Much industrial

relations literature focuses on pay setting mechanisms or the trade-off between

compensation and entitlements rather than non-pay rewards or entire reward systems.

Labour process theory, which emerged from the IR paradigm, contributes an

alternative understanding of SHRM’s claims (discussed below), which is that high

performance/high commitment HR practices, such as total reward management,

improve performance by motivating and empowering employees. In contrast, labour

process theorists claim that performance improvements following the introduction of

high performance work practices are actually the result of work intensification

(Ramsay, Scholarios, & Harley, 2000; Thompson & Hartley, 2007). Yet while reward

studies taking an IR perspective are often concerned with employee interests and often

address issues of fairness, they rarely interrogate employee fairness perceptions—an

important distinction because perceptions of fairness may not always align with the

best interests of employees or actual fairness.

Some organisational psychology approaches describe employee reward systems

as key to the psychological contract between an organisation and its employees. The

psychological contract incorporates reciprocal obligations, subjective to individual

parties to the agreement (employee, supervisor, executives, HR, etc.) (Rousseau,

1995). Organisational justice literature, which is concerned with fairness perceptions

in relation to work, is closely related to the psychological contract. Justice literature

also emerged from social psychological research and has also been commonly applied

to reward, as discussed in Section 2.6. Organisational justice theory, which explains

the source and consequences of employees’ subjective fairness perceptions in a work

setting, provides the theoretical framework for this research. Although psychological

approaches have been criticised for a narrow focus on the subjective perceptions of

individuals and for placing the onus of responsibility for negative outcomes at work

on individuals rather than institutions, organisational justice theory allows for broader

examination of what shapes fairness perceptions at an aggregate level (see Section

2.5).


A key debate in the employee reward literature is whether employees are

motivated to perform beyond job requirements by intrinsic or extrinsic rewards, with

some claiming that performance-related rewards actually demotivate employees (Deci,

Koestner, & Ryan, 1999; Frey, 1997), while others claim that financial incentives

improve job performance (e.g., Jenkins, Mitra, Gupta, & Shaw, 1998; Shaw & Gupta,

2015). This debate is outside the scope of the current research, which focuses on the

extrinsic rewards an organisation intentionally offers to employees rather than internal

motivation and intrinsic rewards. Intrinsic rewards are excluded from the scope of this

research because they are inherently inconsistent across the organisation and therefore

unlikely to provide a useful basis for examining employee perceptions of fairness in

relation to the reward system as a whole. The following sections examine the most

relevant approaches to and themes in the employee reward literature that have emerged

from the dominant HR disciplinary perspective.

A fundamental precept of SHRM is that organisational performance depends

upon linking employee performance to the organisation’s strategic objectives (Huselid

et al., 1997; Lengnick-Hall & Lengnick-Hall, 1988; Schuler & Jackson, 1987). Given

the focus of SHRM on linking employee performance to the strategic goals of the

organisation, it is unsurprising that SHRM continues to be the dominant paradigm

underpinning reward management studies. SHRM approaches also dominate

practitioner literature because it is usually the HR function that has primary

responsibility for the design, implementation, and oversight of reward management

within an organisation. In SHRM, employee reward is seen as a mechanism for

attracting and retaining appropriate employees and eliciting desired behaviours and

performance (Shields et al., 2016). Overall reward and recognition systems are

frequently omitted from conceptualisations of high performance work systems

(HPWS) practices in favour of narrower reward practices, such as performance-related

or merit-based pay.

SHRM literature was drawn upon throughout this research because it relates to

the case organisation’s explicitly stated objectives and rationale for the reward system.

An SHRM approach also aligns with the case organisation’s practice of assigning HR

responsibility for designing, implementing, and managing the employee reward

system. SHRM literature is specifically adopted in this thesis to inform the


identification of research gaps; to understand the reward management approach taken

by the case organisation; and to conceptualise what a reward system is.

In SHRM theory, the resource-based view of the firm regards employees as the

source of competitive advantage for an organisation and considers that the effective

implementation of HR practices improves organisational effectiveness by eliciting

desirable behaviours and improving individual performance (Barney, 1991). This is

particularly relevant to knowledge-intensive industries such as financial services

(Wright, Dunford, & Snell, 2001). Some influential SHRM scholars have claimed that

the adoption of certain integrated HR initiatives in almost any organisation can

improve organisational performance (the universalist approach) (Becker & Huselid,

1998; Huselid, 1995; Wood, 1999), whilst others have emphasised the importance of

a “best fit” contingency approach (i.e., aligned with the particular organisation’s

strategy) (Applebaum & Batt, 1994; MacDuffie, 1995; Purcell, 1999). However, such

broad-brush approaches neglect to account for unintended consequences or

inconsistencies arising from issues other than “best practice” or “best fit”.

Many SHRM researchers have rejected a focus on components of human

resource management (HRM) systems (such as reward management) in favour of the

overall effect of the “bundle” of complementary HRM systems (Becker & Gerhart,

1996; Delery & Doty, 1996; Huselid, 1995; MacDuffie, 1995). The issue of shallow

treatment of employee reward management is reinforced in many HPWS studies

through the inclusion of performance-related pay as one of many HR initiatives on a

checklist, and the inclusion of a uni-dimensional pay satisfaction measure as a measure

of workplace outcomes (Becker & Huselid, 1998). This is significant because HPWS

approaches have been adopted by many large organisations, including the case study

organisation that was the focus of this research.

The SHRM tendency to examine HR as a bundle has led to claims that this has

resulted in insufficient attention being given to the impact of individual components

of HRM systems on employee and organisational outcomes (Delery, 1998; Dyer &

Reeves, 1995; Guest, 1997; Jiang et al., 2012; Wright & Boswell, 2002). Such an

argument provides part of the justification for this PhD research, which constitutes an

in-depth examination of an employee reward system in its organisational context.

The total reward literature emphasises the importance of treating an

organisation’s entire reward system (policies, strategy, and intrinsic as well as extrinsic


rewards) as a bundle linked to organisational strategy (Armstrong, 2012; Thompson,

2002). The overall objective of total reward is to align organisational, management,

and employee interests. This approach is particularly pertinent to the current research,

because it is the approach taken by the case study organisation. The total reward

literature emerged from strategic HRM and has parallels in its emphasis on linking HR

practices to organisational and individual performance. For example, “reward delivers

performance” is the explicitly stated theme of Armstrong’s (2012) influential

Handbook of Total Reward Management. While it incorporates academic research,

total reward literature is overwhelmingly prescriptive and practitioner-focused. It also

draws on surveys and anecdotal evidence produced by organisations, HR, and reward

consultants and reward managers (CIPD, 2015b; Kao & Kantor, 2004; WorldatWork,

2015b), meaning that the research is not usually conducted according to academic

standards of rigour and reliability.

The stated objectives of a reward system according to the total reward

management approach are to incentivise high performance to support the achievement

of business goals, provide differential individual rewards according to contribution to

the organisation, attract and retain talent, and appropriately reward employees in line

with their needs and wants in order to motivate and engage them (Armstrong, 2012;

Thompson, 2002).

The role of line managers in reward is relevant to this research. In the case

organisation, line managers have an influential role in implementing and explaining

reward policy. The influence of supervisors on the effectiveness of HR initiatives is

well established in the literature (Purcell & Hutchinson, 2007; Sikora & Ferris, 2014),

as is the nexus between HR devolution to front line managers and gaps in policy and

implementation (Gilbert, De Winne, & Sels, 2011; Nehles, van Riemsdijk, Kok, &

Looise, 2006; Perry & Kulik, 2008). HR literature has examined the impacts of the

devolution of HR practices to line managers, including the constraints on supervisors

in meeting business requirements, limited understanding amongst line managers of HR

processes, and a lack of HR support. For example, Gilbert, De Winne, & Sels (2011)

emphasised the need for HR support to guide supervisors without HR expertise and

the importance of giving line managers time to understand, communicate, and

implement HR policies and procedures. Studies of supervisors’ role in, and influence

on, reward matters are limited and tend to focus only on performance-linked pay rather


than other aspects of reward systems (Currie & Procter, 2001). For example, Harris

(2001) showed that middle managers’ personal beliefs about rewarding individual

performance had an important influence on the organisational effectiveness of

performance pay policies. Despite this, few studies have investigated the effects of

devolving responsibility for pay decisions to line managers, with an employment

relations perspective on line managers’ role in reward management particularly

lacking (Townsend & Hutchinson, 2017).

Alongside the academic literature summarised above, there is a large and

influential volume of practitioner literature relating to reward management.

International professional institutes, such as the Chartered Institute of Personnel and

Development (CIPD) and WorldatWork, have large memberships, high circulation

periodical publications, such as Compensation and Benefits Review and WorldatWork

Journal, and active blogs and forums where reward practitioners discuss practical

issues. Powerful remuneration consulting firms, such as Hay Group and Aon Hewitt,

contribute to the practitioner literature and often drive broader reward agendas. Some

academics, particularly strategic HR scholars, publish in practitioner journals,

presumably to ensure their research reaches the audience for which it has the most

relevance. However, many practitioner journals are not (or are only partially) peer

reviewed, making it difficult to substantiate the rigour of the research. For instance,

Compensation and Benefits Review contains some of the most comprehensive and

detailed research into employee reward; however, the journal only introduced peer

review policies in 2015 and only some of its papers are subject to peer review

(Nalevanko, 2015). An example of an idea prevalent in the grey literature that has not

been addressed empirically is that organisational rewards systems go “stale” unless

they are changed regularly, which has led to the accepted wisdom for the need for

constant change of rewards as pay increases, bonuses, and rewards eventually become

considered entitlements and no longer motivate desired performance (e.g., Geraghty,

2014; Heathfield, 2017). It is likely that this idea originated from Herzberg’s (1964)

conceptualisation of some aspects of reward (e.g., adequate base level salary, pay

administration, and benefits) as a hygiene factor that may result in lower job

satisfaction if they are removed. However, and albeit without empirical evidence,

much grey literature now suggests that all aspects of reward are motivators rather than

hygiene factors.


The practitioner literature is relevant to this PhD due to its influence on reward

systems, especially in large organisations, and the fact that the case study organisation

uses the services of remuneration consulting firms and an external provider’s online

rewards/benefits platform. In this PhD program of research, the body of practitioner

literature was assessed critically and used, where relevant, to provide insights into the

rationale, objectives, design, and implementation of the case study organisation’s

employee reward system and to provide context for the analysis of the interviews with

HR, benefits management, and reward management staff. This approach is in line with

the guidelines proposed by R. J. Adams, Smart, and Huff (2016) for the appropriate

use of grey literature to “increase the relevance and impact of management and

organisation studies” (p. 1). This theme of understanding and analysing practitioner

knowledge sources is further discussed in Section 2.4 in relation to knowledge

translation theory.

2.1.2 Components of reward systems

The following section provides a critical summary of the literature addressing

the various components of reward systems: base level pay, performance linked pay,

employee benefits, and recognition (Armstrong, 2012).

Pay

Financial rewards are also referred to as pay, compensation, or remuneration,

though the term pay is used most commonly in this thesis. Base level pay is the fixed

financial remuneration provided to employees and is usually set on the basis of the

position’s responsibilities rather than the individual employee’s capabilities (Shields

et al., 2016). Until the 1970s in the US, UK, and Australia, pay was seen as a routine

administrative function subject to little management discretion, strictly governed by

collective bargaining agreements, and characterised by progression through set levels

often based on length of service. However, “new pay” scholars writing from the 1990s

onwards instead emphasised the importance of tailored compensation to attract, retain,

and elicit desired levels of performance among employees (Balkin & Gomez-Mejia,

1992; Lawler, 1990)

Existing pay-related literature provides some indication of the dimensions that

may be important in understanding fairness perceptions of reward systems. These

include the broad context of national wage-setting bodies and processes; legislative


obligations relating to pay; and industry standards, norms, and pay levels. Some

critical organisation-level drivers are organisational policies and the impact of pay on

profitability, productivity, efficiency, employee motivation, and turnover. Employee-

related issues at stake include pay outcomes such as livelihood and comparable worth,

perceptions of organisational justice, and motivation (Corby et al., 2009).

Performance-linked pay

Performance-linked pay, also called incentive pay or merit-based pay, includes

all monetary elements of reward that are contingent on performance (such as bonuses

related to specific outcomes, or pay linked to a performance appraisal rating). SHRM

literature often claims that performance-based rewards increase motivation, teamwork,

and organisational performance (Barkema & Gomez-Mejia, 1998; Gerhart &

Milkovich, 1990; Gerhart, Rynes, & Fulmer, 2009; Kessler & Purcell, 1992). It is

almost taken for granted in HPWS literature that a proportion of pay should be

differentiated on the basis of individual performance in order to attract and retain the

best employees and motivate desired performance (Gerhart & Rynes, 2003; Rynes,

Gerhart, & Parks, 2005). However, as noted in the previous section, the ability of

performance-linked pay to motivate employees is contested. Key debates in

performance-linked pay revolve around intrinsic vs extrinsic motivation and the ability

of financial incentives to motivate performance. Recent large studies, such as that by

Shaw and Gupta (2015), claim that evidence from a variety of organisational and

cultural contexts shows that financial incentives are effective. Since the current

research is not focused on the effectiveness of performance pay in eliciting desired

performance, this body of literature is not dealt with in detail. However, as discussed

below, research that has examined the organisational justice implications of

performance-linked pay is directly relevant to the research objectives of this thesis.

Employee benefits

Employee benefits may be defined as employee rewards outside of base level

pay and performance-linked financial and non-financial rewards. For example,

benefits including health and wellbeing plans, flexible work arrangements, employee

discounts on proprietary products, or paid leave are often offered to all permanent

employees (or certain cohorts or employees) rather than tailored to individuals. In a

time of prolonged wage stagnation in Australia (ABS, 2017a), benefits are increasingly

recognised, in the practitioner literature at least, as an important, low cost way for


organisations to attract and retain suitable employees within cost constraints. Benefits

are also often discussed (though not in detail) as part of the practitioner total reward

management literature (discussed above), some of which explores the optimal mix of

various employee reward components (CIPD, 2015b; Fuehrer, 1994; Kao & Kantor,

2004). Flexible work arrangements (FWAs) are often presented as an employment

benefit in the public recruitment information communicated by large organisations,

though there is contention, as discussed in Chapter 6, about whether FWAs are a

benefit (i.e., an aspect of total reward) or an entitlement (because Australian legislation

provides the right to request flexible work arrangements). For the purposes of this

research, FWAs are defined as a benefit, because they are explicitly framed as a benefit

by the case organisation and by comparable companies in the same industry sector.

Benefits have been described as the least developed area of rewards research,

despite gaining increasing prominence as a proportion of remuneration (Dulebohn,

Molloy, Pichler, & Murray, 2009; Shields et al., 2016). There is a distinct lack of

academic research examining employee benefits, perhaps because they have

previously been viewed as a relatively inconsequential component of remuneration.

Issues that have been addressed include benefits communication (Freitag & Picherit-

Duthler, 2004; Picherit‐Duthler & Freitag, 2004; Shields, Scott, Sperling, & Higgins,

2009), and benefits preference of employees with differing demographic

characteristics (Dencker, Joshi, & Martocchio, 2007). A few researchers have

examined benefits using an organisational justice framework, as discussed in the study

presented in Chapter 5. A more detailed review of the employee benefits literature is

also provided in Chapter 5.

Recognition

Employee recognition, or public recognition of an employee’s extra effort or

performance by an organisation or manager acting as the organisation’s delegate, is

another area where practitioner attention outweighs academic studies. In recent years,

practitioner literature has focused on better utilising recognition as a low-cost

alternative or complement to financial rewards in an environment where pay raises are

limited (CIPD, 2015a; WorldatWork, 2015a).

Recognition is different to the other extrinsic rewards described above, and some

scholars (such as Brun & Dugas, 2008; Hansen, Smith, & Hansen, 2002) claim that it

should not be considered part of a reward system. However, recognition is within the


scope of this research for two reasons. The first is that employee recognition was part

of the suite of rewards deliberately and consistently offered by the case organisation

to its employees. Secondly, the case organisation formalised its recognition system and

employs an external “reward portal” provider who provides an online platform with a

dual purpose of providing a segment of employee benefits (retail discounts) and

allowing supervisors to recognise outstanding performance via email certificates and

small, low cash value rewards, such as cinema tickets or gift vouchers. In their

comparative study of non-cash rewards in Australian and Canadian firms, Long and

Shields (2010) argued for the treatment of employee recognition as similar to financial

rewards, as both have a symbolic (or honouring), as well as an instrumental role.

2.2 ORGANISATIONAL INEQUITY

While there has been a good deal of research into perceived fairness issues

arising from pay and other aspects of reward management systems (as discussed below

in relation to organisational justice), the inequitable outcomes arising from reward

systems is under-researched. For the purposes of this review, the term “pay inequality”

refers to differences in compensation for comparable work, which encompasses

various “diversity or equality strands” (O’Reilly, Smith, Deakin, & Burchell, 2015, p.

313), including gender, ethnicity, disability, age, and any other basis for unequal pay

for work of a similar standard and similar value to an organisation.

The allocation of rewards via organisational reward systems may also be placed

in the broader context of growing income inequality. The Organisation for Economic

Co-operation and Development (OECD) and the World Economic Forum have

recognised income inequality as a key global economic risk (Bapuji, 2015; Cingano,

2014; Piketty, 2015). For example, Australian data from 2016 show that wage disparity

(the difference in remuneration between the highest and lowest paid employees) is

higher where there is a discretionary component to income, such as performance-based

pay or bonuses (ABS, 2017b). Another key source of internal organisational income

disparity is gender. The Australian financial services and insurance industry has

comparatively high pay disparity (the income gap between the lowest and highest paid

workers) and the largest gender pay gap of any Australian industry (29.6 per cent

compared to the national average of 15.3 per cent) (ABS, 2017a; WGEA, 2017).

Although pay equity is not a focus of this research, it is relevant insofar as comparing

overall pay gap statistics with the fairness perceptions of employees. There is a large


and well-developed literature addressing pay equity. Organisational explanations for

the gender pay gap have been identified as one of four analytical approaches to

exploring the gender pay gap (the others being economic, sociological, and

institutional) (Rubery & Grimshaw, 2015). There has been far less research into

organisational explanations for the wage gap than sectoral, economic, and international

studies (O’Reilly et al., 2015). Research into organisational explanations is the most

relevant for exploring the link between reward systems and pay equity, because

organisational explanations “draw attention to job evaluation and grading schemes and

the associated bonus regimes awarded to particular groups of workers” (O’Reilly et

al., 2015, p. 304).

Consistent with organisational wage disparity statistics, recent analysis has

found that the gender pay gap is smaller in regulated salary and collective bargaining

environments and larger where pay is partially or completely negotiated at the

individual employee level (O’Reilly et al., 2015). There is also evidence that the

gender pay gap is larger in organisations and industries where individual pay and

bonus allocations are accompanied by non-disclosure or secrecy clauses (Cassells &

Duncan, 2018; Kim, 2015). However, there is a dearth of research exploring what it is

about reward management systems and processes that may lead to these unequal

outcomes within organisations and whether inequitable reward distribution influences

employees’ perceptions of fairness.

2.3 PAY TRANSPARENCY

Pay transparency and the related concept of pay secrecy were examined in this

research as characteristics overlaying all dimensions of the reward system. Pay

transparency can be defined as “the extent to which employees are familiar with each

other’s pay levels” (Hartmann & Slapničar, 2012). Pay secrecy relates to both formal

pay confidentiality clauses, where employers may impose sanctions on employees for

revealing their pay, and pay secrecy norms regarding employees’ unwillingness to

share pay information. A 2009 study by Shields et al. in the US and Australia showed

that half of the organisations studied actively discouraged employees from sharing

salary information, and that this appeared to be a growing trend.

The limited pay secrecy and pay transparency literature is currently scattered

across disciplines. For example, organisational behaviour literature has examined the


relationship between pay transparency and constructs such as job and pay satisfaction,

motivation, and organisational citizenship behaviour (Bamberger & Belogolovsky,

2010; Belogolovsky & Bamberger, 2014). Recent research has also shown that

organisational accountability for, and transparency about, pay decisions reduces

workplace inequality (especially on the basis of gender, race, and nationality) (Castilla,

2015). Studies into the equity implications of pay secrecy span HRM, law,

organisational sociology, and industrial relations. HRM scholarship tends to focus on

the planning, design, and implications of pay communication strategies and practices

(Marasi & Bennett, 2016). For example, a 2014 paper by Costas and Grey also

developed the concept of organisational secrecy in terms of social processes and the

distinction between formal and informal secrecy.

Despite a continued focus on pay secrecy and its implications for employees and

organisations, pay transparency as a field of scholarly interest is conceptually under-

developed, with organisational pay communication and pay transparency practices and

strategies identified as areas requiring further research (Colella, Paetzold, Zardkoohi,

& Wess

Documents

J REWARDS PERCEIVED FAIRNESS TRANSPARENCY AND … · 2018. 10. 26. · JUST REWARDS: PERCEIVED FAIRNESS, TRANSPARENCY AND EMPLOYEE REWARD SYSTEMS. Melinda Kim Laundon BA (Hons), MPP,