The Impact of Organizational Justice on Employees' Pay Satisfaction ...

The Impact of Organizational Justice on Employees’ Pay Satisfaction, Work Attitudes and Performance in Chinese Hotels Xiaoyi Wu Chunben Wang

ABSTRACT. The authors have done an empirical study to investigate the relationship between pay fairness and employees’ pay satisfaction in ten hotels in China. The results of data analysis indicate that employees’ perception of organizational justice (distributive justice, procedural justice, interactional justice, informational justice) and managerial compliance with the labor law are important antecedents of employees’ pay satisfaction (satisfaction with pay level, benefit, bonus, pay raise, pay structure and administration), and employees’ perception of organizational justice has both direct and indirect impacts on their affective commitment to the hotel, work effort and performance.

KEYWORDS. Pay fairness, pay satisfaction, legality, affective commitment, work effort

INTRODUCTION Over the past 4 decades, substantial research has demonstrated the impact of justice in work organizations (for a meta-analytic review, see Xiaoyi Wu, PhD, is Assistant Professor, Department of Tourism and Hospitality, School of Business, Xiamen University, Xiamen, China 361105 (E-mail: [email protected]). Chunben Wang, PhD, is Professor, Department of Tourism and Hospitality, School of Business, Zhongshan (Sun Yat-Sen) University, Guangzhou, China 510275 (E-mail: [email protected]). Journal of Human Resources in Hospitality & Tourism, Vol. 7(2), 2008 Available online at http://jhrht.haworthpress.com C 2008 by The Haworth Press. All rights reserved. doi: 10.1080/15332840802156923 181

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Colquitt et al., 2001). Many scholars have found that enhanced employees’ fairness perceptions can improve outcomes relevant to organizations (e.g., organizational commitment, job satisfaction, and performance). Despite this, few articles in the hospitality literature have investigated the relative effects of perceived justice on the employees. Recent research in the organizational justice area suggests that justice can actually be broken down into four empirically distinct dimensions: distributive, procedural, interpersonal, and informational justice (Colquitt, 2001; Colquitt, Conlon, Wesson, Porter, & Ng, 2001; Greenberg, 1993). Virtually the relative influence of each type of fairness on employees’ pay satisfaction, work effort, and work performance have been relatively under-researched. To the best of our knowledge, the relationship between pay fairness and organizational outcome has never been tested in a Chinese context. Only Leung et al. (1996) has investigated the relationship between perceived justice and job satisfaction in joint-venture hotels in China. Leung et al. (2001, p. 928) argued that “given the relatively low wages in China, it is entirely possible that incentives such as pay, fringe benefits, and promotion opportunities may dictate how one feels about one’s job, and that the concern for justice is peripheral.” This statement can be questioned. Thus, the primary question addressed in this study is whether the four types of justice would be related to organizational outcomes in Chinese hotels as is the case in Western society. In this study, we aim to develop and test a comprehensive model of employee perceived fairness on their work attitudes, behavior, and performance. Specifically we have the following aims in mind:(1) to assess the potential differential impacts of four types of pay fairness on five critical pay satisfaction dimensions; (2) to explore the relationship between managerial compliance with the labor law and employees’ reaction to organization; (3) to explore the degree to which pay fairness and pay satisfaction dimensions have separate associations with employees’ affective commitment, work effort, and work performance within a comprehensive conceptual framework.

LITERATURE REVIEW AND HYPOTHESES Organizational Justice and Pay Satisfaction Justice theories have now been widely applied in organizational settings. Although the literature on organizational justice is still marked by a

Xiaoyi Wu and Chunben Wang

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debate over whether the domain includes two, three, or four dimensions of justice, some recent work has indicated a four-factor confirmatory model provided the best fit to the data and further showed the four justice dimensions predicted different outcomes(Colquitt et al., 2001). Distributive justice (DJ) refers to the fairness of the allocation of a reward. The dominant theory of DJ is equity theory by Adams (1965), which posits that one’s reward should be proportional to one’s input. Procedural justice (PJ) refers to the fairness of the procedures and processes used in decision-making (Thibaut & Walker, 1975). Interactional justice (IJ) refers to the fairness of the treatment that people receive from decision makers, which is fostered by dignified and respectful treatment (Bies & Moag, 1986). Informational justice (IN) focuses on the explanations provided to people that convey information about why procedures were used in a certain way or why outcomes were distributed in a certain fashion, which is fostered by adequate and honest explanations (Colquitt et al., 2001). In the present study, we included separate measures of distributive, procedural, interpersonal, and informational justice and assessed the extent to which these variables may be differentially related to employee reactions. Although much has been written on a conceptual level, the relationships between multiple forms of fairness and pay satisfaction have been relatively under-researched. Pay satisfaction can be defined as the “amount of overall positive or negative affect (or feelings) that individuals have toward their pay” (Miceli & Lane, 1991; Williams et al., 2006). Several authors, the most notable H. G. Heneman and Schwab (1985), have suggested that this broad definition of pay satisfaction should be replaced by a multidimensional conceptualization of pay satisfaction (e.g., H. G. Heneman & Schwab, 1985; Judge, 1993): pay level, benefit, pay raise, and pay structure and administration. Prior research has shown that perceived justice is significantly associated with pay satisfaction, even though an argument has existed regarding the issue of which type of justice is vital to pay satisfaction. A number of studies suggest that distributive justice is more related to person-centered evaluations like outcome satisfaction, whereas procedural justice is more related to evaluations of a system or organization. For example, Folger and Konovsky (1989) reported that the strongest relationships were found between (a) distributive justice and pay satisfaction and (b) procedural justice and commitment. McFarlin and Sweeney (1992), Sweeney and McFarlin (1993) reported similar results. However, the empirical studies that have addressed particular precursors to fairness perceptions have typically investigated distributive and procedural fairness or have focused on

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the impact of perceived fairness on global pay satisfaction (e.g., Sweeney & McFarlin, 1993) or just one dimension of pay satisfaction (e.g., pay level satisfaction, McFarlin & Sweeney, 1992). It might explain why research efforts to date have produced mixed results with respect to the role of pay fairness dimensions and their impacts on pay satisfaction and, ultimately, organizational outcomes (Tekleab et al., 2005). Heneman and Judge (2000) suggested that there is a critical need for greater understanding of fairness issues as they apply to pay allocations in organizations. To date, few researchers have investigated simultaneously the relationship between four types of pay fairness and multidimensional pay satisfaction. Accordingly, we make a general hypothesis to investigate the relative importance of each type of justice: Hypothesis 1: Pay fairness will be positively related to pay satisfaction.

Compliance With the Labor Law and Pay Satisfaction Since China adopted the reform and opening-up policy in late 1978, the wage distribution system of urban employees has kept innovating. The Labor Law of the People’s Republic of China (1994), and Regulations on Minimum Wages in Enterprises and Provisional Regulations on Wage Payments contain clear-cut provisions on standardizing the distribution of wages. All these laws and regulations emphasize that “the distribution of wages shall follow the principle of distribution according to work and equal pay for equal work.” Yet, some employers still don’t run businesses in accordance with the labor laws, e.g., they discriminate against migrants and females, deduct or delay the payment without justification, pay the employees under the local standard on minimum wage, which have introduced inequity issues that undermine the potential motivating impacts of pay on front-line employees and lead to negative outcomes. To our knowledge, the relationship between managerial compliance with the labor law and employees’ pay satisfaction has never been tested in China. Therefore, we propose the following: Hypothesis 2: Compliance with the labor law will be positive to pay satisfaction.


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Justice Perceptions and Affective Commitment, Work Effort and Performance Organizational commitment is widely studied in the organizational justice literature. In terms of social exchange theory (Blau, 1964), if employees consider themselves in conditions of social exchange, they may be more likely to involve with the organization, and thus have greater loyalty to the organization. Prior research has shown that perceived justice is significantly associated with organizational commitment (e.g., Folger & Konovsky, 1989; Konovsky & Cropanzano, 1991). Cohen-Charash and Spector found in their meta-analytic review (2001) that perceived distributive, procedural, and interpersonal justice are significantly related with affective commitment. Researchers have also explained the effects of justice on performance in terms of equity theory and the exchange relationship, i.e., transactional, economic (Robbins, Summers, & Miller, 2000). Employees are likely to adjust their effort, which in turn will affect performance, in response to perceived injustice. Some authors have proposed that procedural justice, in particular, should lead to enhanced performance, and empirical evidence supports the relationship between procedural justice and performance (see reviews by Konovsky & Cropanzano, 1991; Lind & Tyler, 1988; Robbins, Summers, & Miller, 2000). Past research has never examined the effects of perceived fairness on work effort. A recent commentary on the justice literature called for a better linkage to be made between justice and task motivation (Taylor, 2001). Colquitt and Chertkoff (2002) suggested task motivation might be the key mechanism that can be used to link justice to performance. And they noted that few, if any, justice scholars have measured motivation explicitly. Colquitt and Greenberg (2003) believed that by more closely considering motivation it would be possible to clarify the inconsistent effect of procedural justice on job performance that has been reported in the literature. For example, Colquitt et al. (2001) found the procedural justice had a correlation of .36 with performance in their meta-analysis, but the relationship varied widely across studies and across procedural justice conceptualizations. Colquitt and Greenberg (2003) suggested the academe should pay close attention to motivation as a variable in future studies of organizational justice. Accordingly, we propose the following: Hypothesis 3: Pay fairness will positively influence (a) affective commitment, (b) work effort, and (c) work performance.

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Pay Satisfaction and Affective Commitment, Work Effort, and Performance At the same time, it is possible that the pay satisfaction dimensions themselves may have separate effects on employees’ work attitudes and behaviors. When employees think that they are under-rewarded, they may withdraw psychologically from the situation, e.g., reduce affective commitment to the employer, and they may reduce or withhold inputs, e.g., reduce performance, be absent, or quit. Two meta-analyses (Cohen & Gattikeer, 1994; Mathieu & Zajac, 1990) have shown that pay satisfaction is related to organizational commitment. Yet, relatively few studies have attempted to connect pay satisfaction and subsequent work effort and work performance, much less considered the pay dimensions issue. To our knowledge, no research has examined the possibility of pay satisfaction dimensions on affective commitment, work effort and work performance within a framework that includes justice considerations. Therefore, we propose the following: Hypothesis 4: Pay satisfaction will mediate the relationship between pay fairness and (a) affective commitment, (b) work effort and (c) work performance.

METHOD Sample and Procedure We surveyed 1180 employees and their supervisors in ten hotels in Guangdong Province of China. The questionnaire was constructed after extensive discussions with focus groups and in-depth interviews with hotel employees, team leaders, and human resource managers. 682 employees and their supervisors provided useable data, yielding a response rate of 57.8%. We required the supervisors to evaluate the work performance of their immediate subordinates. Among the employee participants, 60.0% were females; 86.7% were in the age range 18 to 35; 87.6% worked for the hotel for less than five years; 80% were migrants from all over the country. In terms of average monthly wage, 64.0% were under 1200 RMB.1 1

At the time of the survey, the exchange rate was 1U.S. dollar for about 8 RMB.


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Survey administration was coordinated by human resource managers in those ten hotels. Secretaries in each human resource department maintained a roster of participants and were responsible for follow-up. The participants were assured of confidentiality and told that the information would be used for research purpose only.

Measures Pay fairness. We measured distributive justice, procedural justice, and interactional justice mainly based on Moorman’s scale (Moorman, 1991), which consists of six items measuring distributive justice and five items each measuring procedural justice and interactional justice. Informational justice was measured with a nine-item scale based on Colquitt’s scale (2001). All justice measures used a seven-point Likert-type scale that ranged from 1 (strongly disagree) to 7 (strongly agree). Managerial compliance with the labor law. Three items were developed, which asked whether hotel employees were rewarded by employers according to labor law, including benefit, call-back pay, and statutory holidays subsidy. Pay satisfaction. The four dimensions (pay level, pay raise, benefit and pay system and administration) of satisfaction were measured using the corresponding scales from the Pay Satisfaction Questionnaire (PSQ; Heneman & Schwab, 1985).2 Besides, as bonus is an important component of employee compensation in Chinese hotels, we wrote four items specifically to measure employees’ bonus satisfaction. Participants responded on a 7-point scale from “very dissatisfied” to “very satisfied.” Affective commitment. Affective commitment was measured using a ten-item scale based on research by Allen and Meyer (1990), and Decotiis and Summers (1987). The present study used an affective measure of organizational commitment because Hackett, Bycio and Hausdorf (1994) and others found affective commitment is most affected by the nature of one’s work experience (Allen & Meyer, 1990). Work effort. Work effort was measured using a nine-item scale based on scales used by Warr, Cook, and Wall (1979), and Botheridge (2003). Work performance. Work performance was measured by a nine-item questionnaire that consisted of supervisory-rated evaluation across several 2

The PQS items were translated into Chinese by the first author, and translated back into English by the second author to ensure equivalence. Then the scale was pre-tested using a sample of 432 employees in two hotels. We make the formal scale according to the test outcome.

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dimensions, including the quality of work, quantity of work, speed of work, ability, task complexity, etc. The rating scale was from 1 (inadequate) to 7 (superior).

ANALYSIS AND RESULTS As recommended by Anderson and Gerbing (1988), a two-step approach for structural equation modeling was followed. In the first step, we conducted confirmatory factor analysis (CFA) using LISREL 8.52 to examine the factor structures of all the items used to assess all the independent and dependent variables. This comprises testing the measurement model for convergent validity (i.e., the degree of association between measures of a construct) and convergent validity (i.e., the degree to which measures of constructs are distinct). Following Gefen’s procedure to assess unidimensionality of the constructs (Gefen, 2003), one PJ item, four IN items, two items for pay system and administration satisfaction were dropped. Then we undertook a confirmatory factor analysis based on a partial disaggregation approach on all remaining items for all constructs. The items representing a construct were selected at random to form two indicators for the construct to reduce random error and retain the multiple measure approach to structural modeling Sweeney et al., 1999).. All the factor loadings were highly significant (P < 0.001) suggesting convergent validity. Discriminate validity was established by constraining, one at a time, each of the between-factor covariance terms to one. Nested chi-square tests revealed that, in all cases, the better measurement model was the one in which the two variables were viewed as distinct, but correlated factors. According to Hu and Bentler (1999), a model is considered as an excellent fit if Comparative Fit Index (CFI) is greater than or equal to 0.96 and Residual Mean-Square Error of Approximation (RMSEA) is less than or equal to 0.06. Initial CFA results showed that the items loaded on their respective factors and the 13-factor model had an excellent fit (χ 2 = 431.82, df = 221, p = 0.00, CFI = 1.00, RMSEA = 0.038). Cronbach’s α was used to test reliability, and each variable resulted in values over .72 (see Table 1), which indicated the reliabilities were all satisfactory. In the second step of our procedure, we used LISREL 8.52 to perform a manifest indicator structural equation analysis to assess the fit between the proposed model and our data. The fit of the proposed models to the data are considered good when the magnitude of the CFI and GFI fit statistics


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TABLE 1. Means, Standard Deviations, Reliabilities (Cronbach’s α) and

Pearson Correlation Coefficient. Mean SD DJ PJ IJ IN LA RA BO SY PL BE AC EF SP

4.88 4.67 5.13 4.79 4.74 4.43 4.14 4.32 4.06 4.50 5.30 5.74 5.42

1.46 1.51 1.43 1.48 1.76 1.36 1.43 1.33 1.50 1.60 1.18 1.10 0.89

α

DJ

PJ

IJ

IN

LA

RA

BO

SY

PL

.93 .92 .95 .96 .87 .84 .92 .95 .92 .97 .96 .93 .92

(.87) .78 .68 .68 .48 .66 .57 .62 .56 .49 .45 .32 .33

(.86) .80 .80 .47 .66 .61 .67 .55 .51 .49 .30 .32

(.90) .72 .51 .60 .51 .60 .48 .53 .52 .32 .35

(.93) .43 .65 .57 .64 .53 .52 .46 .32 .36

(.77) .44 .44 .55 .50 .75 .26 .21 .25

(.72) .80 .82 .76 .58 .43 .19 .26

(.85) .84 .69 .56 .35 .18 .24

(.91) .76 .66 .38 .22 .28

(.86) .64 .36 .21 .24

BE

AC

EF

SP

(.93) .32 (.92) .20 .38 (.87) .27 .36 .90 (.86)

Notes: Covariance show in parentheses along the diagonal. All correlations are significant at p