EurWORK European Observatory of Working Life

Impact of reward practices on perception of fairness and job satisfaction

About

Country: 
Portugal
Author: 
Heloísa Perista and Eudelina Quintal
Institution: 
Research Centre for Social Intervention (CESIS)

A study on human resources development policies has sought to examine the effect of reward practices on workers’ satisfaction, with the perception of fairness playing a mediating role. The results point to the fact that profit-sharing exerts a negative influence on job satisfaction, particularly whenever the perception of procedural and interactional fairness is absent. Job satisfaction, on the other hand, is positively influenced by the perception of fairness.

The changes imposed by global competitiveness make organisations more receptive to the implementation of measures for rapid adaptation to new market demands. In this context, organisations have a growing interest in implementing reward systems to incentivise workers to commit to organisational goals. These systems consist of variable reward practices based on recognition of the worker’s contribution to the results of the business through their work performance and in an effort to increase their motivation and productivity. This topic was addressed in a recent master’s thesis on human resources (HR) development policies.

About the study

In the thesis study, the analysis of the role of reward practices on workers’ satisfaction and its relationship with the perception of fairness was based on information obtained through semi-structured interviews. The interviews were conducted with HR managers of four multinational manufacturing companies engaged in the production of automotive components, and sought to differentiate between the compensation practices of these organisations – that is, practices of variable and fixed compensation. In addition, 116 self-administered questionnaires were distributed among the workers of these four companies in order to analyse the relationship between the perception of fairness and job satisfaction. The workers surveyed were chosen with the help of the HR managers, and some 93 replies were obtained. The questionnaire data were analysed using descriptive statistics as well as correlation and regression analysis.

Concepts of fairness

The main concepts used were: procedural fairness, interactional fairness and distributive fairness. The concept of procedural fairness corresponds, for example, to the procedures used in salary increases, disciplinary systems, performance evaluation, recruitment and selection. Individuals form their perceptions of fairness from certain criteria or rules of procedure.

The concept of interactional fairness reflects the quality of interaction with the decision-maker – that is, in terms of whether the decision-maker acts with respect and dignity and provides appropriate and logical justifications to the workers. This concept focuses on the social interactions – that is, on the way in which the decision-maker transmits and explains the results to the workers.

Distributive fairness is related to the fairness of the results achieved or purposes, such as wages, evaluations, disciplinary processes, profit-sharing, promotions and the acceptance or rejection of candidates.

Negative impacts of profit-sharing

One of the main findings of this study is that reward practices based on profit-sharing have a negative influence on workers’ satisfaction. This result seems contradictory given that the systems of reward seek to promote the encouragement, appreciation and recognition of the worker with regard to the needs of the organisation. However, since profit depends not only on workers’ performance but also on factors external to the organisation – such as seasonal products, government policy, the economic situation or the use of financial resources – reward systems may lose their purpose.

Moreover, the results show that profit-sharing has a negative influence not only on job satisfaction but also on procedural fairness and interactional fairness. Regarding procedural fairness, it is possible that an organisational decision can be based on a normative criterion, but may be perceived as unfair by employees who are affected by that decision. The perception of procedural fairness is related to the workers’ participation and involvement in processes, as well as to the use of consistent criteria and procedures, based on accurate and precise information. This result highlights the importance of communication, integration and trust as determinants for the practice of rewards based on profit-sharing.

Perception of fairness

In terms of the perception of interactional fairness, the results show that workers not only react to the share of profits distributed and the procedures adopted, but also to the fairness of social interactions: that is, the way that explanations for decisions are made, sensitivity to personal needs, and being treated with dignity and respect.

Regarding distributive fairness, workers who perceive the share of profits received as unjust tend to develop attitudes and behaviours of dissatisfaction, along with low performance at individual or organisational level, higher staff turnover and absenteeism.

The study also highlights that job satisfaction is influenced positively and very significantly by the perception of the three dimensions of fairness: the perception of distributive fairness explains 40% of the variance of job satisfaction (beta= .643), while procedural fairness explains 43% of the variance (beta= .659) and interactional fairness explains 25% of the variance (beta= .508).

The influence of profit-sharing on job satisfaction is mediated by the perception of fairness in such a way that profit-sharing may have a negative influence on satisfaction when there is no perception of procedural and interactional fairness.

Commentary

The results of this study offer HR managers the opportunity to reflect on the implications of their practices, specifically the impact of reward practices on workers’ attitudes. The results underline the importance of these practices in the organisation’s relationship with the worker in terms of job satisfaction. They also point to the role of the perception of fairness as a variable mediating this relationship. The reward system has the potential to integrate individual efforts and direct them towards the strategic objectives of the organisation, as long as this is well-defined and perceived as fair.

Reference

Silva, M.M., Pereira dos Santos Anjos e, As práticas de recompensas: consequências na percepção de justiça e na satisfação dos trabalhadores [Reward practices: consequences on the perception of fairness and workers’ satisfaction], thesis submitted as part of a masters’ degree in development policies of human resources, Lisbon, Higher Institute of Labour and Corporate Science (Instituto Superior de Ciências do Trabalho e da Empresa, ISCTE), 2008.

Further information

A Dutch study also explored the influence of fairness on work-related outcomes, and found that a perceived lack of fairness can lead to burnout and poor job satisfaction (NL0801019I).

Heloísa Perista and Eudelina Quintal, Research Centre for Social Intervention (CESIS)