Developing A Fair Pay System

Paper Summary:

The paper reveals that fair pay or sound remuneration strategies play a pivotal role in employee retention, motivation and overall performance. The paper explains the relationship between an employer and employee that is known as an exchange relationship. The paper then discusses the equity theory and the concepts of psychological contract and pay for performance. The paper explains why it is important to understand the concepts that guide and trigger an employee's perception of fairness and equity.

From the Paper:

"Fair pay or sound remuneration strategies play a pivotal role in employee retention, motivation and overall performance. For this reason, organizations today seek to strike a balance between flexibility and equity when trying to develop strategies of fair remuneration. Flexibility is needed because of increasing concern that payment system may sometimes not match performance, and equity is important because employees need to find the system fair when compared with pay package offered to other employees doing the same or similar jobs. A rapidly growing body of literature and research indicates that flexibility and equity have now come to occupy a vital place in remuneration schemes and the inability of strike a balance might results in breach of psychological contract."

Sample of Sources Used:

• Adams, J.S. (1965). 'Inequality in social exchange.' In L. Berkowitz (ed.) Advances in Experimental Social Psychology, Vol. 2. New York: Academic Press.
• Herriot, P., Manning, W.E.G. and Kidd, J.M. (1996). ' The content of the psychological contract', Working paper: Department of Organisational Psychology, Birbeck College.
• Nourayi, Mahmoud M.; Daroca, Frank P., Performance evaluation and measurement issues.. Vol. 8, Journal of Managerial Issues, 06-22-1996, pp 206(12)
• Riolo (2002). Argue for pay for performance. Commentary.
• Rousseau, D.M. and Parks, J.M. (1993). 'The contracts of individuals and organisations'. In: Cummings, L.L. and Schein, E.H. (1980). 'Organisational psychology', Prentice-Hall, Englewood Cliffs, NJ.

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