Equal or equitable pay? Individual differences in pay fairness perceptions

• Author: Jie Wang,Tingting Chen,Yue Zhu,Rui Sun,Tae‐Yeol Kim
• Published date: 01 March 2019
• Date: 01 March 2019
• DOI: http://doi.org/10.1002/hrm.21944

ORIGINAL ARTICLE

Equal or equitable pay? Individual differences in pay fairness

perceptions

Tae-Yeol Kim

1

| Jie Wang

2

| Tingting Chen

3

| Yue Zhu

4

| Rui Sun

5

1

Organizational Behavior and Human

Resource Management Department, China

Europe International Business School (CEIBS),

Shanghai, China

2

Nottingham University Business School

China, University of Nottingham Ningbo

China, Ningbo, China

3

Department of Management, Lingnan

University, Tuen Mun, Hong Kong

4

Department of Human Resource

Management, Zhejiang Gongshang University,

Hangzhou, Zhejiang, China

5

Rokid Corporation Ltd., Hangzhou, China

Correspondence

Jie Wang, University of Nottingham Ningbo

China, 199 Taikang East Road, Ningbo

315100, China.

Email: jie.wang@nottingham.edu.cn

Yue Zhu, Zhejiang Gongshang University,

Hangzhou 310018, China.

Email: carolzhuyue@hotmail.com

Funding information

Lingnan University, Hong Kong Special

Administrative Region, China; National Natural

Science Foundation of China, Grant/Award

Number: 71502164

This study examined how social comparison (i.e., comparing one's pay to similar others' pay) and

deserved comparison (i.e., comparing one's pay to one's deserved pay) affect pay fairness per-

ceptions, and the individual differences in the comparison processes. Results based on a field

study with a sample of 167 employees showed pay fairness was low when employees received

lower pay than a similar other (or what they deserved), increased as their pay exceeded that of a

similar other (or deserved pay) to some extent, and then decreased when overpayment was con-

siderable. Second, pay fairness increased as one's actual and similar others' pay levels both

increased while pay fairness remained the same as one's actual and the deserved pay levels both

increased. In addition, the “threshold”that people start to perceive overpayment as less fair

occurred more quickly for those with higher preference for consistency in social comparison

and for those with higher preference for the merit principle in deserved comparison. We also

conducted experiments, and the results generally replicated the findings in the field study. These

findings offer theoretical implications regarding organizational justice, as well as practical impli-

cations for designing and executing a compensation system.

KEYWORDS

deserved comparison, pay fairness, preference for consistency, preference for the merit

principle, social comparison

1|INTRODUCTION

Pay is a critical influencer on the quality and effectiveness of human

capital (Gupta & Shaw, 2014), and pay fairness perceptions matter in

explaining a range of employees' work attitudesand behaviors in orga-

nizations (He, Long, & Kuvaas, 2016; Kwon, Kim, Kang, & Kim, 2008;

van Dierendonck & Jacobs, 2012). Management researchers have

devoted much attention to the factors affecting pay fairness percep-

tions. One important work is Adams's (1965) seminal article on equity

theory, which delineates the cognitive process that people engage to

form pay fairness perceptions. Equity theory focuses on pay fairness

perceptions formed by comparing one's pay against that of similar

others (i.e., social comparison, Greenberg, Ashton-James, & Ashkanasy,

2007; Peters, van den Bos, & Bobocel, 2004; van den Bos & Lind,

2001). On the other hand, a line of recent justice research posits pay

fairness perceptions can also be affected by the comparison of their

pay against a standard of what they believe they deserve

(i.e., deserved comparison), and transgression of this standard is per-

ceived as unfair (Folger & Cropanzano, 2001; Leung & Tong, 2003;

Luna-Arocas & Tang, 2015; Skitka& Mullen, 2002).

Both lines of research enhance the understanding on how people

make pay fairness perceptions, but several important issues remain

unaddressed. A first question that has surprisingly been omitted from

prior research regarding pay fairness dynamics is: how are employees'

pay fairness perceptions influenced when their pay levelexceeds what

similar others receive (or deservedpay level) and when they view their

pay level relative to that of similar others (or deserved pay level) to be

both low or both high? The literature mainly adopts experiments to

manipulate the underpayment and overpayment scenarios without

examining the effects of the continuous degree of pay discrepancy

(e.g., Clay-Warner, Robinson, Smith-Lovin, Rogers, & James, 2016; De

Cremer & Van Kleef, 2009; Liu & Brockner, 2015; Peters, van den

Bos, & Karremans, 2008; van den Bos, Peters, Bobocel, & Ybema,

2006). As an exception, Kim, Edwards, and Shapiro (2015) treated pay

DOI: 10.1002/hrm.21944

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and reprodu ction in any medium,

provided the original work is properly cited.

© 2019 The Authors Human Resource Management Published by Wiley Periodicals, Inc.

[The copyright line for this article was changed on 4 March 2019 after original online publication]

Hum Resour Manage. 2019;58:169–186. wileyonlinelibrary.com/journal/hrm 169

discrepancy as a continuum and unveiled the complexity regarding the

joint effects of one and similar others' pay level on pay fairness. Kim

et al. (2015)found a nonsymmetrical curvilinear relationshipamong Chi-

nese, Japanese,and Korean employees, suchthat pay fairness increased

as one's pay increased toward that of similar others, continued to

increase as one's pay level exceeded what similar others received, and

then decreased whenthe overpayment became excessive;pay fairness

increased as one's and similar others' pay level both increased. How-

ever, we do not know how the comparison of one's actual pay level to

the deserved paylevel dynamically relates to payfairness. In particular,

we are unsure whether a nonsymmetrical curvilinear relationship also

applies in deserved comparison and how pay fairness changes as one's

actual and thedeserved pay levels both increase. Whether thenonsym-

metrical curvilinear relationship between social comparison and pay

fairness can be generalized in other cultural contexts (e.g., the United

States) also remains unclear. In addition, theoretically driven research

that integrates individual differences and justice perceptions remains

scarce, despitethe call for further studies on individual differences and

justice (Colquitt & Greenberg, 2003; Colquitt, Scott, Judge, & Shaw,

2006; Major & Deaux,1982; Rupp & Bell, 2010). No research examines

in detail how the effectsof social/deserved comparisonon pay fairness

can vary acrossindividuals.

To address these research gaps, we theorize and test a nonsym-

metric curvilinear relationship between social/deserved comparison

and pay fairness by employing social and deserved comparison pro-

cesses (discussed in our Literature Review section) among American

employees. We also examine how pay fairness changes as one's actual

pay level and a similar other's pay level (or the deserved pay level)

both increase. In addition, this study explores individual differences as

contingent factors for the nonsymmetric curvilinear relationship

between social/deserved comparison and pay fairness. We specifically

study how the preference for consistency, which focuses on the sensi-

tivity of people to consistent outcomes (Nail et al., 2001), and the

preference for the merit principle, which focuses on the sensitivity of

people to equitable allocations (Major, Kaiser, O'Brien, & McCoy,

2007), affect the relationships between social/deserved comparison

and pay fairness. We constructively replicate the findings obtained

from the survey by using scenario-based experiments, which provide

evidence of causality implied in our hypothesized relationships and

enhance the internal validity of our research.

Our study provides threeimportant contributions to the justice lit-

erature. First, we integrate the two types of cognitive appraisals

(i.e., social and deserved comparisons) in one theoretical model, thus

providing a comprehensive understanding of how pay fairness percep-

tions are formed. We can also respond to Cropanzano, Goldman, and

Folger's (2003, p. 1022) call for a new researchagenda to explore “cog-

nitive processing mechanisms for generating justice judgments.”Sec-

ond, by examining the nonsymmetric curvilinear relationship between

social/deserved comparisonand pay fairness, we delineate the pattern

of how pay fairness perceptions are affected by the continuum from

underpayment to overpayment with greater precision than previous

studies. Third, investigatingthe moderating effects of individual differ-

ences in the relationships between social/deserved comparison and

pay fairness helps us specifythe boundary conditions of justice effects

and provides insights into relevant justice theories. Our study sheds

light on how and why people react differently to social/deservedcom-

parison processes in forming pay fairness perceptions. In addition, our

study helps practitioners understand how employees' comparisons of

their actual pay to that of similar others and to theirinternal standards

on how they should be treated can influence their pay fairnesspercep-

tions. Specifically, thisstudy offers a precise understanding of how pay

fairness perceptions change in facing a continuum of pay discrepancy

situations (i.e., underpayment vs. overpayment) and why employees

respond to the same pay level differently.

2|THEORETICAL BACKGROUND AND

HYPOTHESES

One fundamental principle in the justice literature is that individuals

form pay fairness perceptions by comparing their work experiences

with those of similar others to yield social comparison (Chen, Choi, &

Chi, 2002; Greenberg, 1983). Adams (1965) argues that when making

pay fairness judgments, individuals evaluate their pay relative to their

inputs and then compare that ratio to the ratio of similar others. In a

similar vein, Folger and Cropanzano (2001) posit that people judge the

fairness of an event by imagining how the event will turn out if experi-

enced by a similar other. These arguments have received some empiri-

cal support. For example, Austin, McGinn, and Susmilch (1980) found

fairness perceptions were significantly affected by the rewards rela-

tive to the ones a similar other receives. There are a number of impor-

tant extensions of this line of research. For example, van den Bos

et al. (2006) and van den Bos, Lind, Vermunt, and Wilke (1997) exam-

ined pay fairness judgments under special situations, such as not

knowing similar others' pay or when cognitive processing was limited.

In addition to social comparison, the justice literature indicates

justice judgments can be affected by deserved comparison (i.e., the

comparison between how a person is treated and what he/she

believes he/she deserves, Folger & Cropanzano, 2001; Leung & Tong,

2003; Luna-Arocas & Tang, 2015; Skitka & Mullen, 2002). Deserved

comparison should be distinguished from social comparison. As a ref-

erent to evaluate actual pay for pay fairness judgments, deserved

comparison focuses on internal standards such as moral mandates or

job-related inputs while social comparison uses similar others

(Berkowitz, Fraser, Treasure, & Cochran, 1987). Deserved comparison

can be as important as social comparison in employees' fairness judg-

ments. Building upon the deontic model of justice (Folger & Cropan-

zano, 2001), Leung and Tong (2003) propose a normative model of

justice. This model posits people hold internalized deserved standards

of appropriate conduct, which is derived from their moral mandates

and ethical orientation (Cropanzano & Rupp, 2002). These deserved

standards provide the yardstick to make fairness judgments, and

“complying with internal justice standards …is an end and satisfying in

and of itself”(Leung & Tong, 2003, p. 105). Although this set of

deserved standards has moral connotations, it is broader than merely

morality concerns (Leung & Tong, 2003). This set is also based on job-

related inputs (contributions), the market value of one's work, and per-

ceived social consensus (e.g., shared guidelines of acceptable rewards).

When their pay deviates from what they believe they deserve, people

tend to perceive unfairness.

170 KIM ET AL.