SATISFACTION IN DETERMINANTS OF PAY

Introduction
The wage level is the average wage paid to employees. This may mean all employees, some
particular group of employees or a single employee of the organization. This has two implications. The
first is external: how does the organization compare with other organizations? This question is a
strategic one of how the organization wishes to position itself in the marketplace. The second
implication is internal. The average wage is a reflection of the total wage bill of the organization.
Labor is one of the claimants on organizational resources. The size of the wage bill is a reflection of
monies paid to entry level workers on up to the top executive. The decision on compensation levels
(how much will the organization pay?) may be the most important pay decision the organization
makes: a potential employee's acceptance usually turns on this decision, and a large segment of the
employer's costs are determined by it. Organizations have a wide range of discretion in setting wage
levels. Although organizations seek out and use information on what other employers pay, this
information is only one of the determinants of wage levels. It also to set out some of these wage
determinants and the manner in which they may be used. Although no claim is made that all wagelevel determinants have been identified, it is hoped that enough are presented here to illustrate the
process used and the factors considered when an organization decides how much to pay.

Content
Summary of the Journal Article
Omar and Oyengi (2007) were conducting a study about determinants of pay satisfaction of
senior managers in the Nigerian Civil Service. This study shows that pay incentive scheme is a
distinctive dimension of pay satisfaction among senior managers in the Nigerian Civil Services (NCS)
and the perception of pay-for-performance determines the level of satisfaction with pay. There is
having the important of implication for organization and human resources practitioners in Nigeria to
design their compensation and benefit programmes. These study also one of the studies that explore
pay incentive schemes as distinct dimension of pay satisfaction relevant to the Nigerian work
environment. It adds value to the study of organisational justice by demonstrating that procedural
justice, interactional justice, and distributive justice that influence pay satisfaction.
Meanwhile, Moriones, Sanchez and Morentin (2013) conduct a study about the determinants
of pay settlements: the influence of the national context. This study were examines the influences of
national context and collective bargaining on the factors taken into account when adjusting wages.
This study also examine the relative importance of the cost of living, the ability to recruit or retain
employees, the financial performance of the organization and the industrial relation climates on wage
adjustment of manual workers at the establishment level. Moriones et. al (2013) found that there are
the differences on the importance given to these factors and in part, these are related to differences in
the incidence of collective bargaining.

Then, E.Day (2011) was conducting a study about perceived pay communication, justice and
pay satisfaction. This study proposes the relationship between pay communication and pay satisfaction
because justice perceptions mediate them. Pay communication is of particular interest to managers of
public sector organization, where many aspects of the pay system are in the public domain, and
without adequate communication, may be easily misunderstood by workers. Pay communication has
both direct and mediated relationships with pay satisfaction (satisfaction with pay level, benefits, pay
raise, and pay administration). Distributive justice accounts for more variance in all pay satisfaction
dimensions than procedural justice. Interpersonal and information justice are essentially unrelated to
pay satisfaction. Other than that, perceived pay communication predicts not only pay satisfaction, but
also perceptions of organizational justice. In turn, justices mediation is critical to enhancing
satisfaction with pay. Organizations should carefully design and implement pay communication
programs.

C. Bol (2011) were conducting a study about The Determinants and Performance Effects of
Managers Performance Evaluation Biases. This study examines the determinants and performance
effects of centrality bias and leniency bias. The results show that managers respond to their own
incentives and preferences when subjectively evaluating performance. Specifically, informationgathering costs and strong employee-manager relationships positively affect centrality bias and
leniency bias. The findings also indicate that performance evaluation biases affect not only current
performance ratings, but also future employee incentives. Inconsistent with predictions based on the
agency perspective, the results show that managers performance evaluation biases are not necessarily
detrimental to compensation contracting. Although centrality bias negatively affects performance
improvement, the evidence does not reveal a significant negative relation between leniency bias and
performance. Rather, leniency bias is positively associated with future performance, which is
consistent with the behavioral argument that bias can improve perceived fairness and, in turn,
employee motivation. The understanding the causes and performance of the implications of bias is
important for executives in charge of incentive design, as it can help them determine how much
discretion to allow managers in performance-based compensation plans and, hence, can lead to
improved incentive contracting.
Next is the journal article from Shin, Kang, Hyun and Kim (2014). Shin et. al was conducting
a study about Determinants and Performance Effects of Executive Pay Multiples: Evidence from
Korea. These studies examine factors that influence executive pay multiple (executive-employee pay
disparity) and its effect on the performance. This study were using the data from Korea, where all
publicly listed firms are required to provide detailed information on average employee pay in their
annual reports, they find that a substantial portion of cross sectional variation in the executive pay
multiple is explained by the firms economic and political characteristics. Results also indicate that the
executive pay multiple has a statistically significant negative relation with subsequent operating and
stock return performance. The researcher also used two-stage approach. However, reveals that the
performance effects of the executive pay multiple are likely to be influenced more by deviations from
the expected executive pay multiple, estimated using the first-stage determinant model, than by the
absolute pay multiple.

Journal Articles Critics

Based on these five articles that I was studied, most of the studies were discussing the level of
satisfaction for determinants of pay. According to Omar and Oyengi (2007), Nigerian Civil Services
(NCS) administers pay (the merit pay system) will naturally influence the pay raise received by
individual managers. The expectancy view, instrumental perception and procedural justice are
significant in determinants of satisfaction with pay incentive schemes. Besides that, this provides
further support that procedural elements also play an important role in influencing satisfaction
outcome. The results also revealed that interactional justice did not have any impact on satisfaction
with a pay incentive scheme (Omar, 2007). The fairness of treatment received will certainly have a
bearing on employees satisfaction with the actual pay raise and the way the NCS administers pay.
Meanwhile, according to Moriones, Sanchez, and Morentin (2013), the determination of wages is not
only under the employees control since they are exclusively determined by the demand and supply of
labour. The study were focused on fours factors that influences wage adjustments at the establishment
level which is the cost of living, the ability to recruit or retain employee, the financial performance of
the firm and the industrial action threatened or taken. Based on this four factors or elements, the study
shows that positive effect of collective bargaining at the firm level on the importance given to the cost
of living in pay setting. Firm-level collective bargaining is associated with a greater importance cost
of living. Other than that, this study also indicates that under a firm-level, collective agreement,
workers have a high power to negotiate wage increase that maintain their living standard (Moriones
et.al, 2013). Here, i strongly agree with Moriones et.al (2013) because employees work hardly in order
to get a good pay for a good living. Besides that, the increases of the living cost nowadays make
employee more aggressive in order to fight the equal pay for equal work that they do based on their
knowledge, skills, ability and others.
On the other hand, C.Bol (2011) understands that the cause and performance implications of
bias are important for executives in order to determine or in charge of incentives design. Through this,
the study can help to know how much discretion to allow managers in performance-based
compensation plans and hence, can lead to improve incentive contracting. Managers respond to their
preferences and own incentives when they were subjectively evaluate by the performance. Centrality
bias and leniency bias positively affect in information-gathering cost and strong employee-manager
relationship (C.Bol, 2011). Besides that, bias also influence the incentives provide by performancebased compensation. Here we can see that, pay for employee will determine by the performance.
Employee will be more motivated to increase their effort only when they expect they will get more pay
or compensation when they improve their performance. Then, they will meet with the satisfaction in
get the pay and also in perform their work. In contrast, shin et. al (2014), argued that large vertical pay
disparity is beneficial because it provides lower-level employees with strong incentives to work hard
4

in order to get the reward or promotion. This study was focus more on the pay disparity rather than the
determinants of pay for employees and not clear enough in explaining how the employer determine
pay for each employees. Besides that, views vertical pay disparity as a feature of rank order
tournament incentives. These vertical pay disparities give a benefit to the lower-level employees.
From my view, vertical pay disparity are good to the employees because can increase employee
motivation to work hard in order to get a good pay. As cited by Shin et. al (2014), a large vertical pay
disparity also can helps the firm attract and retain talented top manager and elicit their best effort, y
offering highly competitive compensation without the constraint of internal equity consideration. But,
according to Trevor et. al (2012), vertical pay disparity is also influence by a firms compensation
practices, including pay level and pay-for-performance.
Then, according to E-Bay (2011), when workers understand how their pay is determined, little
is known about dynamics of how pay communication affects pay satisfaction. This study shows that,
in US public sector organization, they require an open system pay in order to deal with issues of pay
communication. According to Scott et. al, 2005 (as cited in by E-Day, 2011), few firms spend much
time and effort in communicating to their employees about how pay is determined and allocated. In
my opinion, this way is suitable and important to know the employees wants and needs and also
employer can know dissatisfied from the employees about their pay. This is because; pay is often seen
one of the factor that effect emotional and behaviour of employees in doing their job. For example, if
the workers did not satisfy with the pay, they will not focus and not perform the job well. The
absenteeism also increases and the products that they produce not have the quality due to
dissatisfaction of pay. Other than that, employees motivation also decrease and lead to turnover. But,
compared to Omar and Oyengi (2007), the study initially proposed that pay satisfaction consists of
five distinct dimensions which are; pay level, pay raises, benefit, structure and administration. Besides
that, according to Clark and Oswald, 1996 (as cited by Omar and Oyengi, 2007), the receipt of
performance-based rewards, including pay increases and bonus, positively affected pay-system
reaction.
Conclusion
Organizations must be both able and willing to pay wages at particular levels. The labour
market tells the organization what others are doing, but the determination of what the organization
itself will do, is based on these factors of ability and willingness. The ability to pay is a major
influence on the wage-level decision and one that has come to have increasing importance in the past
few years, due to changes in economic fortunes of organizations and the increasing competition from
foreign firms. Willingness is more a matter of equity and competition in the marketplace.
Organizations wish to pay wage rates that are considered fair. Thus they pay particular attention to
wage surveys in terms of identifying comparable wage rates for their jobs.
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References
C. Bol, J. (2011). The Determinants and Performance Effects of Managers Performance Evaluation
Biases. The Accounting Review, 86 (5), 1549-1575.
E. Day, N. (2011). Perceived pay communication, justice and pay satisfaction. Employee Relations, 86
(5), 476-497.
Moriones, A, B., Sanchez, J, E, G., & Moretin, S, M, D. (2013). The Determinants of Pay Settlements:
The influence of the national context. The international Journal of Human Resources
Management, 24 (3), 579-600.
Omar, O, E., & Ogenyi, V, O. (2006). Determinants of pay satisfaction of senior managers in the
Nigerian Civil Services. International Journal of Public Sector Management, 19 (7), 687-701.
Shin, J, Y., Kang, S., Hyun, J., & Kim, B. (2014). Determinants and performance Effects of Executives
Pay Multiples.: Evidence from Korea. ILR Review, 68 (1), 57-78.