How Employees Judge Whether They're Fairly Paid

How Employees Judge Whether They're Fairly Paid

From the landmark theory of psychologist Frederick Herzberg in the sixties, right up to Daniel Pink’s recent bestseller Drive – the science backing these investigations into human motivation, shows us that pay is misunderstood on an industrial scale.

In all but the most menial and repetitive of tasks, intrinsic motivators (e.g. freedom, feelings of achievement and mastery, etc.) have a far greater influence on engagement and motivation than pay. However, compensation can negatively affect performance, if employees feel they’re being mistreated.

Compensation, then, should not be treated as the route to higher performance, but instead we should simply work towards ensuring pay is a non-issue – make sure employees are not unhappy with their pay, and get the topic off the table to focus on more important things.

How employees judge whether they’re fairly paid is actually a broader topic than most would immediately assume, or would probably allude to when talking about their own pay. Organisational Justice Theory gives us an explanation, with the three principles that fair pay adheres to.

Distributive Justice – does the output I receive match my input?

The most obvious belief we all hold around pay is that outcomes should be distributed proportionally to inputs – the so‐called “Equity Principle” (Adams, 1965). Outputs can be in the form of wages and other rewards, while inputs include education, training, experience and effort.

It’s hard, however, for employees to objectively determine if their rewards match their input. In response, people tend to make relative judgements based on the perceptions they have about those closest to them. For example, whether they believe their contribution is rewarded on a par with their peers.

If this causes an employee to feel under-rewarded, they may restore perceived equity by reducing their inputs (slacking off), attempting to reduce others’ inputs (convincing coworkers to do less work), seeking to increase their outcomes (asking for a raise), or aiming to decrease coworkers’ outcomes (asking the boss to standardise salaries).

Most organisations provide the foundations for this principle with standardised pay grades, training opportunities, etc., while avoiding arbitrary decisions and favouritism. 

Procedural Justice – is the process for calculating pay fair?

Even if employees don’t receive the output they want in relation to their input, hard feelings can be avoided if they agree the process that lead to this output was conducted fairly. In this sense, Procedural Justice outweighs Distributive Justice. Fair processes are characterised by:

  • Consistency – the same criteria that is used to determine pay decisions must apply to everyone over time.
  • Neutrality – decisions are based on facts, not on vested interests, or personal feelings of the decision maker.
  • Accuracy – the information used to formulate and justify decisions is correct and not based on hearsay.
  • Ethicality – employees don’t suffer discrimination on grounds of age, gender, nationality and other extraneous factors.

The degree to which employees believe procedures and processes are fair, can be enhanced by ensuring they have the chance to discuss and voice concerns before decisions are made – this is known as the “Voice Principle”. Psychologists explain that this fulfils our particular need to be heard and feel part of a group, rather than passively waiting for our fate to be decided by others (Storey, 2000).

Interactional Justice – how am I treated in decision making processes?

In some respects, Interactional Justice can be grouped with Procedural Justice. However, Organisational Justice Theory sees it as significant enough to be considered in its own right. It refers to how pay decisions are reached with employees (Bies and Moag, 1986).

Employees should be able to enter in discussions, in which realistic and accurate information is presented to them openly, where they feel as though they’re treated courteously and in no way intimid or pressured. If they perceive a particular injustice – e.g. inaccurate reward for their effort (as discussed in the Distribution Principle) – they should be able to get a clear explanation based on the principles of Procedural Justice, and if none is available, and apology and action to address any unfairness.

Following these three principles will improve the confidence employees have that they’re fairly rewarded for their work – in turn enabling managers to focus on delivering an employee experience that fosters intrinsic motivation to increase engagement and job satisfaction.