Creating unfairness by mandating fair procedures: the hidden hazards of a pay-for-performance plan

Abstract

Fairness perceptions and sales performance measures were collected from salespersons working originally under a salary-only pay system and subsequently under a salary-plus-commission pay system (i.e., a pay-for-performance plan). Perceptions of organizational fairness were enhanced by the use of a formal pay-for-performance system, although perceptions of individual managers' fairness were reduced by such a plan. Consistent with correspondent inference theory, the formal pay-for-performance pay plan discouraged respondents from crediting their supervisors with the fairness of their actions. The plan also brought significant performance decrements among those who believed they were not being paid for their performance (despite the fact that they were supposed to be). The limitations of mandated fair organizational practices are discussed.