On a combined theory of pay level satisfaction

DOIhttp://doi.org/10.1002/job.2243
Date01 May 2018
Published date01 May 2018
RESEARCH ARTICLE
On a combined theory of pay level satisfaction
Yong Heng (Angus) Yao
1
|Edwin A. Locke
2
|Muhammad Jamal
3
1
Odette School of Business, University of
Windsor, Windsor, Ontario, Canada
2
Robert H. Smith School of Business,
University of Maryland, College Park,
Maryland, USA
3
John Molson School of Business, Concordia
University, Montreal, Quebec, Canada
Correspondence
Yong Heng (Angus) Yao, Management
Department, Odette School of Business,
University of Windsor, Windsor, Ontario M5G
2C5, Canada.
Email: angusyao@uwindsor.ca
Summary
For decades, research on pay level satisfaction has focused on two theories and one approach:
the direct link theory, the discrepancy theory, and the nodifferencescores approach. However,
there are still unsolved puzzles facing pay level satisfaction research. We develop a combined
theory to consider the impact of the interaction of reported pay and pay discrepancy. With this
newly developed theory, we expect that (a) both reported pay and pay discrepancy have main
effects on pay level satisfaction; (b) reported pay and pay discrepancy also interact with each
other, in that the effect of pay discrepancy on pay level satisfaction decreases as pay level
increases; (c) equitable payment is more related to pay level dissatisfaction when pay level is
low; and (d) overpayment in general is related to pay level satisfaction, not dissatisfaction. An
empirical study (N= 481) using four types of comparison standards was conducted, and the
results supported our predictions. The findings of our study have important implications for both
academic research and management practice.
KEYWORDS
comparisonstandard, equitable payment,interaction, overpayment,pay discrepancy, pay level, pay
level satisfaction
1|INTRODUCTION
Pay level satisfaction is defined as an employee's satisfaction with his
or her base pay (Miceli & Lane, 1991). Efforts have been devoted to
studying pay level satisfaction since the 1960s (e.g., Haire, Ghiselli, &
Porter, 1963; Heneman & Schwab, 1985; Lawler, 1971; Locke, 1969;
Opsahl & Dunnette, 1966; see Heneman & Judge, 2000; Judge, Pic-
colo, Podsakoff, Shaw, & Rich, 2010; Williams, McDaniel, & Nguyen,
2006 for reviews). Research on pay level satisfaction is important
because wages and salaries are two of the biggest costs of doing busi-
ness, representing 43.4% of the total value of goods and services pro-
duced in the United States in 2016 (U.S. Bureau of Economic Analysis;
www.bea.gov). Organizations also have to anticipate employees' reac-
tions to their salaries because pay level satisfaction is important as a
potential mediator between compensation and workplace outcomes
such as turnover intentions, voluntary turnover, and objective perfor-
mance measures (see Heneman & Judge, 2000; Williams et al., 2006).
As noted by Lawler (1971), Work on psychological issues involved in
pay can make important contributions to fundamental research and
thinking in such areas as motivation, attitudes, and social comparison
theory(p. 2). Furthermore, a better understanding of pay level satis-
faction is crucial for firms to achieve strategic goals such as employee
selection, incentive, retention, and employee satisfaction (Heneman &
Judge, 2000).
The existing research on pay level satisfaction can be organized
into a nomological network (see Figure 1; also see Heneman & Judge,
2000; Lawler, 1971, 1981; Miceli & Lane, 1991; Williams et al., 2006).
In this framework, determinants, antecedents, correlates, and conse-
quences of pay level satisfaction are clearly differentiated from one
another. Determinants include reported pay, comparison standard,
and pay discrepancy (see Boxes 1, 2, and 3 in Figure 1); pay discrep-
ancy is the difference between reported pay and comparison standard
(Lawler, 1971; Locke, 1969); antecedents include perceived personal
inputs and perceived job characteristics; correlates include distributive
justice and procedural justice; and consequences include withdrawal
cognitions and job performance (Williams et al., 2006). This study
focuses on the determinants of pay level satisfaction. Our aim is to
highlight the strengths and the limitations of existing theories, present
a reconceptualization on these determinants, and discuss how an
improved theory offers a better explanation of pay level satisfaction.
So far, the study on the relationships between pay level satisfac-
tion and its three proximal predictors (i.e., reported pay, comparison
standard, and pay discrepancy in Figure 1) has progressed along three
models; the direct link theory, the discrepancy theory, and the no
Received: 7 July 2016 Revised: 18 September 2017 Accepted: 19 September 2017
DOI: 10.1002/job.2243
448 Copyright © 2017 John Wiley & Sons, Ltd. J Organ Behav. 2018;39:448461.wileyonlinelibrary.com/journal/job

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