Association, 1989). And a recent report of the Advisory Committee on Federal Pay (1990) suggests that there is a fairly strong impulse to see equity in terms of standardization or comparability of pay levels for employees in the same grade and with the same length of service.

The research on fairness and equity does not allow us to draw distinctions among the different pay for performance plans illustrated in Figure 5-1. Presumably distributive and procedural fairness will be important considerations in the adoption of any type of pay for performance plan. Mitchell et al. (1990) do, however, point out that individual and group incentive plans that offer relatively large pay increases, which are not added into base (matrix cells two and three), will over time place more of an employee’s total pay at risk, regardless of whether an employee is in a very high- or very low-paying job. While such risks have been common in many higher-paying jobs (for example profit-sharing plans in top management), their fairness in lower-paying jobs has been questioned. Organizations may want to consider this in adopting individual and group incentives for lower-paid employee groups.

In summary, we believe that this research suggests several points relevant to the relationship between pay for performance plans and fair treatment or equity, although none of it allows us to draw any conclusions about specific types of pay for performance plans. The research does confirm that the perceived fairness of the distribution of pay increases will influence employees’ pay satisfaction. It suggests at least three groups against which employees may assess the fairness of their pay—people in similar jobs outside the organization, people in similar jobs inside the organization, and people in the same job or work group inside the organization. This implies that employers might consider how their pay systems measure up to these three groups in designing the system, in deciding whether to use the same system throughout the organization, and in communications about pay in their efforts to improve employee perceptions about the fairness of pay distributions.

The research also suggests that employee perceptions of procedural fairness can influence their satisfaction with pay, their level of trust in management, and their overall commitment to the organization. Evidence of procedural fairness also appears to be important to other organization stakeholders such as regulatory agencies and unions and associations. This implies that organizations might usefully invest in communications, training, appeals channels, and employee participation in order to ensure procedural fairness.

Finally, the research suggests that there are different beliefs about how pay increases should be allocated—performance, seniority, across the board, and so forth—throughout U.S. society, although pay for performance beliefs appear to dominate among managerial employees in the private sector. The very existence of different beliefs, however, suggests that organizations trying to change their pay increase policies may have to deal with employees’ perceptions of these policies as unfair. We base this notion on theories of procedural fairness that