The importance of employee participation in determining pay system effectiveness

Abstract

Managing pay systems is one of the most controversial and hotly debated areas of human resource management in which contingency theory approaches have dominated over the past few decades. The paper exposes the inadequacies of contingency approaches to pay system design and implementation and assesses the implications of more recent ‘best practice’ approaches, debating the role of pay within the HR bundle. It then reviews research evidence on the objectives and outcomes of different forms of variable pay, with close attention devoted to the role of employee participation in achieving pay system effectiveness. The significance of employee perceptions of distributive, procedural and interactional justice is explored as a means of explaining why employee participation in pay system management appears to be such a critical success factor. The paper concludes by arguing that we need to move away from a fixation with ‘best practice’ to a focus on ‘best process’ as a lens through which to investigate the design, implementation and management of pay systems.