Fair pay: A justice framework for understanding skill-based pay systems.

Skill-based pay is a reward system innovation in which individuals are compensated based on the skills they possess rather than on the job they are currently performing. The purpose of this study was to generate a theoretical framework depicting the dynamics of skill-based pay, employing justice theory to explicate these dynamics. Three research questions guided this research into skill-based pay are: (1) Do individuals perceive their skill-based pay systems as fair? (2) What design components and design and implementation processes influence perceptions of the fairness of skill-based pay systems? (3) What individual, group, and organizational outcomes are associated with perceptions of the fairness of skill-based pay systems? These questions were explored through a comparative explanatory case study research design. The cases were the skill-based pay systems at two high involvement sites. The data collection tools were interviews and archival documents. The primary analytical technique was pattern matching of the emerging theoretical framework against the empirical reality of the two sites. In the theoretical framework of skill-based pay generated from this research, perceptions of fairness are pictured as mediating the relationship between perceptions of design components/implementation processes and resulting outcomes. Results showed that both equity and equality concerns contribute to judgments of fairness, and that equity concerns dominate charges of unfairness. Skill-based pay presented the two case study organizations with a tension between equity- and equality-based solutions to the reward distribution dilemma. In an effort to meet the dual goals of productivity and harmony, the organizations studied made a variety of choices surrounding the distributive, procedural, and interactional justice norms to apply. One site, veering toward equity, adopted difficult and threatening procedures and interactions. The other, swaying toward equality, implemented procedures which are lax and laissez-faire. Nevertheless, results from both companies demonstrate that overall, informants perceived their systems as fair and functional--as empowering them with the information they needed to successfully produce results in a cooperative environment. Implications for skill-based pay design and implementation and for justice theory are discussed.Ph.D.ManagementOccupational psychologyPsychologySocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/130381/2/9722109.pd