International Journal of Pure and Applied Management Sciences;

Vol. 2016.1.2; pp. 09-14, ISSN: 2456-4516

Pay Related Factors Affecting Employee Pay Perception

*Dr. Nidhi
Assistant Professor U.I.L.M.S. Gurgaon.
**Krishna

Kumari

(Correspondent author) Research scholar U.I.L.M.S, Gurgaon.

.
Date of revised paper submission: 15/12/2016; Date of
acceptance: 24/12/2016
Date of publication: 31/12/2016; *First Author/Corresponding Author; Paper ID:
MS16203.
Reviewers: Dr. A. K. Singh; Dr. P. N. Mishra (India).

Abstract
People have unique point of view about their pay. Employee pay perception is
subjective and it changes from person to person due to the influence of various factors. However the
pay perception is the basis of many behavioral outcomes of employee such as pay satisfaction, job
satisfaction, organization commitment, works engagement etc. To understand the employee pay
perception, it is very important to know determinant of pay perception or those factors affecting pay
perception. The present study is an attempt to find those factors that influence pay perception of the
employee. This paper based on review of published research paper online research articles. Finding
of paper describe employee pay perception is based on pay knowledge, pay fairness, pay to
performance linkage and pay secrecy policy of company.
Keywords: Pay perception, Pay satisfaction, Job satisfaction, Behavioral outcomes, Motivation.
1. Introduction
Compensation is the very reason employees are in their job. Compensation or pay
work as motivator for the employee. Thus in today business environment where talent war spared all
over, company use competitive compensation package to attract and retain employee. Present
compensation structure in not that simple as it include various non-monetary rewards in it Employer
offer more variables pay to the employee that is directly linked with employee performance, providing
opportunities to earn more. Designing compensation policy for current workforce is a challenging
task. Todays workforce is diversified, they desire more challenging works and want performance
based compensation.

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International Journal of Pure and Applied Management Sciences;

Vol. 2016.1.2; pp. 09-14, ISSN: 2456-4516
However as pay is the reason of employee motivation and retention at workplace.
Organization want, employee should be satisfied with their current pay. So that organization able to
get more employee engagement. Employee pay satisfaction highly depends on how employee sees
current compensation policy or how he/she perceive current pay as good compensation against their
performance. In that sense it is the employee pay perception or belief that determined pay satisfaction.
It can be concluded that the employee perception is the reason of change of employee behavior
(Prasetya, A. and Kato, M., 2011).
According to CEBs 2014 employee survey on pay communications Half of
employees believe they are paid below market when, in actuality, they are not. Melvin Gan a Total
Rewards HR Professional through his article Perception is reality reveled that employee perception
about pay is depends on comparison with colleges and friends. And they get pay related information
from external source. It appears therefore when it comes to pay; most people ultimately rely on
anecdotal sources and draw their conclusions based on their own perceptions
One of the Pay Scale study found that two-thirds of people who are being paid at
market rate believe theyre underpaid, representing a huge discrepancy. Thus the employee perception
of pay is important phenomenal need to understand. This study is purposed to find those factors
affecting the pay perception of employee.
2. Literature Review
While deciding the compensation policy of organization manager must consider some
important factors such as impact of labor union, employee perception of pay, employees cost of
living, government laws, organization capacity to pay, demand and supply position of wage market
and employee productivity (Smriti Chand) Employees pay perceptions are important in organization
and it will impact the organization talent and business outcomes. But unfortunately, employees often
have a negative view of their pay (Dunn, M. and Martin, J., 2014). As per survey on pay
communication said that 77% employee believe their compensation is based on poor performance
information, whereas 54% having good performance believe they are underpaid or even approximate
50% of employee thing they are paid less than market rate that is not in reality. It has been concludes
that employee generally has negative perception about pay if they dont have right pay information.
And these negative perceptions affect the business implication. It was also revealed that there was
discrepancy between what manger tell employee about compensation and what actually employee
understand. This is because employees are not actually hearing mangers, they trust on external source
for pay information and that information was based on wrong calculation (Dunn, M. and Martin, J.,
(2014).

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International Journal of Pure and Applied Management Sciences;

Vol. 2016.1.2; pp. 09-14, ISSN: 2456-4516
Employees usually do comparison regarding pay, and based on this comparison they
made their perception. Employee feel unhappy or dissatisfied if they feel they are been paid less than
their friends. Managers should effort so that employee believes their compensation is directly related
with their performance and they had paid accordingly. Thus employee pay perception could be
improved if they get right pay information at time from their supervisor or managers (Melvin Gan
Total Rewards HR Professional). Pay satisfaction is an important component of overall job
satisfaction of employee. Employee job satisfaction highly influence by the compensation and its
component. To improve the job satisfaction of employee organization need to adopt transparent pay
structure that is based on employee performance (Shah and Shah)
Pay knowledge is the key of employee pay perception. If an employees has limited
pay knowledge, then they dont know how compensation system works, how they can earn more by
giving batter performance in organization (Diekmann, N., 2015). Employee pay perception is depends
on the pay information and communication, how clear or timely pay information organization provide
to employee. When workers believe they receive pay communication on time, they create more
positive perception towards organizational procedures, distributions, interpersonal treatment, and
information. (Day, N. E., 2011). If employees receive continuous pay information their perception
about pay system will be more positive. High pay knowledge leads to more pay satisfaction and
perceived pay effectiveness at the organizational level (Sweins, C., Kalmi, P. & Hulkko-Nyman, K.,
2009). Pay knowledge can be improve by shifting communications to focus on themes, helping
employees to find information according to their preferences, and enabling managers to have
actionable pay conversations, organizations can significantly improve the delivery of pay messages.
These improvements also increase the impact of communication strategies on employees pay
perceptions. (Dunn, M. and Martin, J., (2014)
Pay perception is also based on perceived fairness of compensation. Fairness is
required in all organization decision, and the absence of fair policy lead to feelings of dissatisfaction
and to perceptions of discrimination. Study found that pay satisfaction is depends on actual pay but it
more depends on whether employee perceive pay policy as fair (Jawahar, I.M. and Stone, T. H.,
2011). Employee perceptions of unfairness are being related by many negative factors. These factors
are generically called Counterproductive Work Behaviors (CWB) (Johnson, J., 2012) pay fairness as
important pillar of pay perception. If employee feel that benefit is distributed fairly they feel more
motivated, but in lack of pay fairness employee feel less motivated and dissatisfied (Prasetya, A. and
Kato, M., 2011).
However apart from pay fairness, Performance based Pay was an important
dimension affecting pay perception. It is an important factor influence the overall pay satisfaction of
employee. Organization need to tightly link the pay and performance, because employee want pay
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International Journal of Pure and Applied Management Sciences;

Vol. 2016.1.2; pp. 09-14, ISSN: 2456-4516
equitable their performance level and should be improve with the performance improvement (Kim, S.,
Mone M. A. & Kim S., 2008). Pay system have essential feature pay equity. Employee feel
discrepancy if they found their pay is not equal to their contribution in the job. Pay perception is also
differing on basis of sex, education and experience. Female has negative perception about pay and
promotion policy of the organization as compare to male. Because male are more satisfied with
organization pay and promotion (Okpara, J. K., 2006).
Employee perceive pay policy ineffective if they found difference between
individual objective and organization objective (Shukla, H. and Tiwari, S., (2013).Thus pay
information, transparency in pay policy want pay to be linked with performance (Diekmann, N.,
2015). To improve the pay perception of employee improvement is required in current compensation
policy in form of better rewards system, performance bonds, introduction of employee stock option
plan, other benefits based on performance (Shukla, H. and Tiwari, S.,2013).
3. Factor Affecting Pay Perception
1. Pay knowledge- Pay knowledge refer to the information about the current pay and it
component. It includes the knowledge about how basic pay is been decide. Once the
employee know how pay actually been decide, employee perception will improve.
2. Pay fairness and Pay equity - it is employee perception that their organization provides
adequate compensation according to skill, knowledge and ability of employee. Pay equity
refers to the perception that employee get pay that is equitable to their effort in the
organization. On the basis of equity theory output need to equal to input in job. Employee
compares their pay with employee at same level or even at same job in different organization.
If employee find present compensation package is competitive than only he/she will satisfied.
3. Pay secrecy- pay secrecy is the company policy regarding distribution of pay related
information. Organization generally thing if the disclose the pay related information then it
will create the feeling of discrimination between employees in the organization and they
follow pay secrecy policy. But in the lack of information employee find other source of
information or they create negative perception towards pay policy.
4. Pay system transparency- pay in organization need to be transparent in term of distribution,
process and interaction. Pay related information easily available to employee.
5. Pay to performance linkage- how clearly the pay actually based on true performance
information. Employee want performance based pay, so that employee get rewards those who
actually deserve it. By providing performance based pay organization can encourage the
employee for job performance and it will motivate the employee.
6. Pay information source- it is the medium trough which employee get pay related
information. Some organization use online source to provide pay information, some provide
information through reports or circular. However employee also uses external sources for
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International Journal of Pure and Applied Management Sciences;

Vol. 2016.1.2; pp. 09-14, ISSN: 2456-4516
information such as websites or salary survey. Employee belief of pay is highly depends on
the source of information through he/she get pay related information.
4. Suggestions to Improve Employee Pay Perception
1. Managers need to focus their attention on the content of information related to pay. Providing
right information to employee is very critical to improve their pay perception
2. Managers required training to have good interaction with the employee. If employee get pay
related information from their immediate manger, then it will boost the morale of employee.
3. There should be clear and straightforward relationship with the pay to performance.
Employee get remuneration according to their performance leads to the feeling of been
importance in organization.
4. Providing more variable pay related with performance give opportunity to employee to earn
more by making extra effort. It will improve pay perception.
5. Man and women should be rewarded equally for the similar work. There should be no
discrepancy in compensation of male or female. It produces the feeling of equality in
organization and leads to positive pay perception.
6. Some organization follow pay secrecy policy in opinion that discloser of pay information
leads to discrepancy, but it is not true employee feel more satisfied if they get pay information
in organization.
7. Organization need to strengthen the communication system to provide pay related information
in timely and proper way.
8. Organization must share pay philosophy of organization and organization vision, so that
employee got self understand about the compensation decision.
5. Conclusion
Compensation is an essential factor of employees overall motivation. Pay is very
important tool to satisfy or retain employee at job. Thus it is very important employee have positive
pay perception. Employee pay satisfaction depends on actual pay but it is also governed by their
perception towards compensation policy. Organization while deciding pay policy should take care
those factors affecting the employee pay perception such as pay fairness, pay information, pay system
transparency. Pay perception depends on the amount and quality of pay information employee get.
Manger should make effort to provide right information to employee as it improves pay perception
and overall pay satisfaction.
References
1. Prasetya., A., and Kato. M, (2011); Employees perception towards the performance
assessment system and salary system, 2011 International Conference on Economics,
Trade and Development IPEDR vol.7, IACSIT Press, Singapore.

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2. Diekmann, N., (2015); Understanding Pay: Perceptions, Communication and Impact in
For-Profit Organization University of St. Thomas, Minnesota UST Research Online
Education Doctoral Dissertations in Leadership School of Education Spring 2015.
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