How experiences and perceptions of pay and pay setting relate to employees’ job performance, willingness to remain in the organization, and health has been the subject of much debate. Previous research has typically used a variable-centered approach to investigate associations between different pay-related factors and such outcomes. In contrast, we used latent profile analysis to explore combinations of compensation characteristics (pay level, perceived horizontal pay dispersion, and procedural quality, i.e., transactional leadership and procedural pay-setting justice), combining relevant theories on the subject. Based on a nationally representative sample of private sector employees in Sweden (N = 1,146), our study identified six compensation profiles. Our key findings show, first, that higher levels of pay were generally associated with better performance, lower turnover intention, better self-rated health, and lower work-related exhaustion, especially when combined with perceptions of high procedural quality. Second, in terms of perceived horizontal pay dispersion, the results indicate that pay compression may be associated with beneficial outcomes, particularly when combined with high procedural quality. Third, procedural quality was generally associated with favorable work-related and health-related outcomes, although such positive effects may be contingent upon pay level and perceived horizontal pay dispersion. In conclusion, while pay level, perceptions of horizontal pay dispersion, and procedural quality may all matter for employee outcomes, it is important to consider their combinations.

This chapter explores research on the importance of money to motivate people to work. Research on the role of money in people’s lives and as a motivator of working shows that even though people need a decent basic income, money is not the best motivator of work performance. A review of research on the effects of performance-based compensation on motivation, performance, and well-being concludes that financial incentives do not seem to be as powerful to drive performance as portrayed in many motivation theories, and that there is still a need to better understand how such incentives relate to need satisfaction and work motivation. Moreover, incentives seem to have undesirable side effects on moral engagement, stress, and well-being. The chapter also explores other aspects of compensation, including how fairness and the relative distribution of money within organizations influence need satisfaction, motivation, and work outcomes, as well as how motivational assumptions and payment norms and preferences might modify how money influences motivation. It ends with an identification of remaining knowledge gaps and suggestions for future research on the effects of compensation on work motivation that would benefit from using self-determination theory, as well as the practical implications of what is known thus far for the design of compensation systems.

In the past decades, the contributions of individuals have come into greater focus on all levels of employment in many types of organizations. For example, this is manifested through an increased use of individual performance-based pay setting, where individual evaluations of employees’ contributions lead to diversified pay raises among peers. The reasons for using such a pay system include that it is expected to motivate better performance and inspire those who perform well to remain with the organization. Criticism of this type of pay system, however, has come from a motivation theory perspective, for example, along with assertions that it is too resource intensive. The general aim of this dissertation was to contribute to the present research regarding how pay-related perceptions relating to these pay systems may encourage work and employees’ well-being. Study I aimed at investigating how various aspects of individual performance-based pay setting (instrumentality of the pay system, performance-based pay-raise amount, and procedural pay-setting justice) and various work design factors addressing employees’ psychological needs (feedback, job autonomy, and social support from colleagues) relate to employee task and contextual performance. Results of hierarchical multiple regression analyses supplemented by relative weight analysis showed that the work design factors – especially job autonomy – evidenced stronger positive relations with employee performance. Study II aimed at identifying groups of employees with similar pay-related characteristics and perceptions of pay setting (regarding pay-levels, perceived horizontal pay dispersion, transactional leadership and procedural pay-setting justice) in the Swedish private sector, and then examining the differences between these groups in regard to work-related (task performance and turnover intention) and health-related outcomes (self-rated health and work-related exhaustion). Latent profile analysis identified six distinct groups. A key finding was that groups characterized by perceptions of low horizontal pay dispersion who also experienced a high pay-setting quality (referring to high levels of transactional leadership and procedural pay-setting justice) – and by high procedural fairness in particular – had the most favorable levels of task performance, turnover intention, and work-related exhaustion. In combination with high pay and high procedural quality, however, high horizontal pay dispersion was associated with fairly decent outcomes, especially in regard to health. Study III aimed at compiling research, especially from a self-determination theory perspective, that concerned how work-related reward systems might encourage work and well-being in organizations by influencing employees’ psychological need satisfaction and motivation types (e.g., autonomous work motivation). It was argued that organizations should lower the saliency of monetary rewards. Instead, they need to design the work, within the limits of the context in which they operate, such that autonomous work motivation is encouraged, thus bringing about maximum well-being and high-performance outcomes. In general, the dissertation maintains that successful individual performance-based pay-setting systems require accurate administration. If not, they may run the risks of discouraging performance, decreasing retention, and lowering employees’ well-being.

The use of performance-based pay is increasing rapidly, but empirical evidence on how and why it relates to job performance, as well as its relative strategical importance, remains unclear. The present study examined the relative importance of performance-based pay variables and support of psychological needs variables for task and contextual performance in a sample of 582 white-collar employees in Sweden. Multiple regression results, based on survey and register data, showed that the instrumentality of the pay system related to lower levels of task and contextual performance. However, supplementary relative weight analysis (RWA) showed that, in relative terms, instrumentality of the pay system was of minor importance for performance. Performance-based pay-raise amount was positively related to contextual performance but not predictive of task performance. Procedural pay-setting justice was unrelated to both outcomes. Among the support of psychological needs variables, feedback and job autonomy had positive associations with both outcomes while social support from colleagues was not predictive of performance. Considering the explained variance (16–17%), the performance-based pay variables combined accounted for up to a third (12.6–29.2%) while support of psychological needs variables accounted for more than half of the explained variance (56.1–68.1%) in task and contextual performance. The results indicate that organizations would benefit from putting support of psychological needs to the forefront of their motivational strategies as a complement to administrating complex compensation systems.

Purpose: Employee perceptions of pay as fair have been suggested to be important for motivation and performance. This circumstance, together with an increase in pay-systems where annual pay raises in part are based on employees’ performance, has directed attention to the justice of pay. The aim of this systematic literature review was to describe research focusing on (1) what contributes to perceptions of pay justice and (2) the potential consequences of pay justice.

Methodology: Literature search in large databases were performed. Major search terms were “pay justice” and” pay-related justice”, supplemented with searches of concepts that emerged as important such as “performance evaluation” and “feedback”. Priority was given to studies published in the year 2000 and later.

Results: In terms of predictors, performance assessments, knowledge of pay-setting criteria, feedback, performance appraisal and the supervisor´s ability to fulfil the requirements as pay-setters, were important for employee perceptions of pay justice. Consequences of pay justice were less studied but a positive relation with pay satisfaction was reported.

Limitations: The literature search was done on pay justice specifically. This means that studies focusing on organizational justice were generally not included, even if such studies could include pay.

Research/Practical Implications: The results provide insights regarding how different aspects of the pay-setting process relate to pay justice and indicate that less is known about the consequences of pay justice.

Originality/Value: Although several reviews and meta-analyses concerning organizational justice in general exists, to our knowledge, this is the first review focusing on pay justice specifically.

Lönesättningen i privat sektor sker med olika grad av koppling till den individuellaprestationen. Vissa avtal ger inget eller endast begränsat utrymme för verksamhets- ochindividnära lönesättning. I andra avtal ges stort utrymme, som i varierande gradanvänds av företagen för att koppla samman lön och arbetsresultat. Generellt setthar tjänstemännens avtal betydligt större utrymme för verksamhets- och individnäralönesättning än de avtal som LO-förbunden träffar.

Syftet med den här rapporten är att undersöka hur anställda i privat sektor, såväl tjänstemän som arbetare, upplever lönesättningen samt att bidra till ökad kunskap om lönens och lönesättningens betydelse för motivation och prestation i arbetet. Någon motsvarande studie av lönesättningen inom privat sektor har inte tidigare gjorts i Sverige. I rapporten beskrivs de anställdas erfarenheter av och uppfattningarom hur deras lön sätts. Här undersöks också hur lön och lönesättning hänger sammanmed motivation och prestation i arbetet. Även andra faktorer – såsom legitimitet ilönesättningen (det vill säga upplevelsen av om lönen sätts på ett sätt som upplevsrättvist), arbetsklimat och personlighet – undersöks i relation till motivation ochprestation.Rapportens resultat baseras på en enkätundersökning som genomfördesår 2016 bland ett nationellt representativt urval av anställda i åldern 20–65 år som arbetade inom fem sektorer: bygg och installation, handel och besöksnäring, industri, service och tjänster samt transport.

Undersökningen visar att färre än hälften hade haft lönesamtal under det senaste året. Av de som hade haft lönesamtal var det ungefär en tredjedel som inte hade förstått hur chefen hade bedömt deras arbetsinsats. Ungefär 40 procent av samtliga svarande angavatt de inte kände till vilka kriterier deras lön baseras på. Av de som kände till lönekriteriernavar det cirka två tredjedelar som ansåg att lönekriterierna följdes. Resultatenvisar att det fanns en stor variation mellan sektorerna när det gäller erfarenheter avoch uppfattningar om hur lönesättningen går till.

De flesta ansåg att det fanns skillnader i arbetsprestation mellan anställda med likvärdigaarbetsuppgifter och att skillnader i prestation borde ge skillnad i lön. Närmare60 procent trodde att individuell lönesättning kunde gynna den egna löneutvecklingen.En sådan positiv förväntan var vanligare bland personer med högre lön och bland män.Däremot var det omkring 40 procent som ansåg att löneskillnader mellan anställdamed likvärdig befattning kunde påverka verksamheten i en negativ riktning, medanomkring 40 procent ansåg att sådana skillnader var bra för verksamheten och20 procent inte hade någon åsikt i frågan.

Anställda som upplevde att den egna lönen i stor eller ganska stor utsträckning varbaserad på deras arbetsutförande var mer nöjda med sin lön än de som inte upplevdeatt lönen var kopplad till prestation. Kvinnor hade en lägre lönetillfredsställelse änmän och rapporterade även generellt något lägre upplevd grad av jämställdhet i lönesättningenän män, oavsett sektor. Graden av legitimitet i lönesättningen (mätt med fyra dimensioner av lönerättvisa) var överlag måttlig till god, men varierade mellan sektorerna. Nivåerna i upplevd rättvisa i lönesättningen var generellt sett högre bland anställda som tyckte att lönekriterierna följdes, som hade haft lönesamtal, som förstodhur chefen hade bedömt deras arbetsinsats och som fick högre grad av återkopplingpå hur de utförde sitt arbete. Chefer rapporterade en högre grad av lönerättvisa jämfört med anställda utan chefsansvar.

Undersökningen visar att lönen som sådan tycks ha viss betydelse för arbetsmotivationoch arbetsprestation. När hänsyn togs till andra faktorer visade sig olika upplevelser avhur lönesättningen går till, såsom förtroende för chefens bedömning och upplevelser avrättvisa, vara viktigare än lönen i sig. Arbetsklimat, i termer av sådant som autonomii arbetet och tydliga mål, var det område som hade störst betydelse för både motivationoch prestation. Personlighet hade betydelse för arbetsprestationen, men var inte särskiltbetydelsefullt för arbetsmotivationen.

Undersökningen visar att det finns behov av att arbeta med hur lönesättningen gårtill inom privat sektor om avsikten är att använda lönesättningen för att motivera ochöka de anställdas prestation i arbetet. Även om lönenivån som sådan har viss betydelseför de anställdas arbetsmotivation och arbetsprestation, har upplevelser av hur lönesättningen genomförs, legitimitet i lönesättningen och arbetsklimatet större betydelse. Chefer kan beskrivas som bärare av lönesystemet och har ett ansvar för att skapatransparens avseende hur lönekriterier används och hur anställdas arbetsutförande bedöms, liksom för att forma de anställdas arbetsklimat.

Sammanfattningsvis visar undersökningen att när lönesättningen fungerar på ett sätt som de anställda upplever som legitimt finns det förutsättningar för att lön och lönesättning kan bidra till ökad motivation och prestation – och därmed även till verksamhetens utveckling. Resultaten antyder att det är viktigt att integrera lönesättningen med andra åtgärder – såsom att främja arbetsklimatet – för att förbättraverksamheten. Lön och lönesättning utgör ett verktyg bland flera i utvecklingen avmedarbetare och företag.