Predictors and Outcomes of Reactions to Pay-for-Performance Plans

In most previous research, pay satisfaction has been treated as satisfaction with pay level; little is known about how individuals respond to pay systems ( H. Heneman, 1985 ). LISREL analyses of survey responses of approximately 2,000 managers and executives in pay-for-performance plans supported the models devised in this study. Perceived pay relative to external others predicted reactions to pay but not to pay systems. Pay-system reactions were associated with particpants' perceptions that (a) the distribution of rewards was consistent with policy; (b) they fared better under the current pay system than under the previous seniority system; (c) performance appraisals adhered to written standards, and (d) the pay plan was adequately funded. Perceived overreward predicted more positive reactions than did perceived equitable reward or underreward. Global satisfaction, job search, and intent to leave before retirement were related to both types of reactions.