Perceptions of politics and fairness in merit pay

Purpose – This paper aims to look into employee perceptions of politics and fairness in a work setting where a new merit pay system had recently been implemented.
Design/methodology/approach – The results are based on employee survey responses from three governmental organizations (n = 367) that had implemented analogous merit pay systems.
Findings – Hierarchical moderated regression results indicated that perceptions of politics and fairness distinctively and interactively predicted whether the pay system was perceived effective in achieving its objectives. The results suggest that some forms of politics in performance appraisals (e.g. compression) might be perceived less detrimental than others (e.g. favoritism). In a high politics environment, the pay system effectiveness varied as a function of the level of distributive justice. Voice in the pay system development only mattered in a situation where there was a low level of organizational politics.
Research limitations/implications – One of the main limitations of this study is its reliance on cross-sectional data. Future research should complement employee perceptions about pay system effectiveness with objective data from the organizations studied. Research on the effect of contextual factors, such as national culture on the motives, in and reactions to, organizational politics,
is desired.
Practical implications – The result suggests that the adopted merit pay systems were not ineffective or detrimental per se, but that the effectiveness varied as a function of the established political and fairness climates at different levels of the organization.
Originality/value – This study contributes to the discussion on what are the conditions under which politics and fairness are antithetical, and when they are interactively associated with outcomes.
Keywords Performance related pay, Performance appraisal, Organizational politics,
Individual perception, Government departments, Finland
Paper type Research paper