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The Importance of Justice Perceptions on Pay Effectiveness: A Two-Year Study of a Skill-Based Pay Plan

Northeastern University

Kenneth S. Law

Hong Kong University of Science and Technology

Philip Bobko

Gettysburg College

We conducted a survey across a two-year period to examine the attitudinal effects of skill-based pay (SBP) plans in a consumer products company in the Northeast region of the United States. We examined the relationship between SBP plan characteristics and employees’ evaluation of (and reactions to) the pay system; fairness perceptions were considered as the explanatory mediating variable. The results demonstrate that SBP plans, which provide training and are better understood and communicated, will lead to an increased general perception of fairness which, in turn, will lead to more positive evaluations of the plans a year later. Implications for the relationships between fairness perception and pay system design are discussed.

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