Is it pay levels or pay raises that matter to fairness and turnover?

Summary

The research paper, "Is it pay levels or pay raises that matter to fairness and turnover?" by Tekleab, Bartol, and Liu (2005), delves into the distinct roles of pay levels versus pay raises in shaping employee perceptions of fairness and influencing voluntary turnover. The core premise of the study was to understand which aspect of compensation, the absolute amount of pay or the incremental increases, holds more sway over employees' attitudes and behaviors. The authors posited that pay satisfaction is a multidimensional construct, and therefore, different facets of pay might have varying relationships with justice perceptions and turnover. The study employed two separate investigations to examine these relationships. In both studies, the methodology involved obtaining measures of pay and justice variables on a cross-sectional basis. Crucially, the measure of employee turnover was lagged, meaning it was assessed at a later point in time after the pay and justice perceptions were gathered. This temporal separation allowed the researchers to infer a more directional relationship between the independent variables (pay and justice perceptions) and the dependent variable (turnover). Although participants were salaried, their salary levels were rescaled to a bi-weekly pay format for analysis. The findings revealed several significant insights. Distributive justice, which refers to the perceived fairness of the outcomes received (e.g., the amount of pay), was found to mediate the relationship between actual pay and both pay level satisfaction and pay raise satisfaction. Interestingly, distributive justice emerged as a stronger predictor for pay level satisfaction. In contrast, procedural justice, which pertains to the perceived fairness of the processes used to determine pay, was a stronger predictor of pay raise satisfaction. Moreover, procedural justice was observed to play a moderating role in the second study, indicating that the fairness of the processes can influence the strength or direction of other relationships. A key finding across both studies was that only pay raise satisfaction exhibited a significant and negative relationship with turnover. In Study 1, this link was direct, while in Study 2, pay raise satisfaction negatively predicted turnover via turnover intention. These results underscore the argument that different dimensions of pay satisfaction have distinct implications for organizational outcomes.