Why justice matters in compensation decision making

Using agency theory and the stakeholder fairness concept as the conceptual base, this study confirmed three agency theory hypotheses about differential relationships between four sets of pay procedures and evaluations of pay, supervision and the employing organization. Education and seniority related variables were also found to moderate the relationships between procedural justice perceptions and evaluations of supervision and the employing organization. The study used a stratified random sample of 612 occupationally heterogeneous employees of a large County government in South Eastern United States. Results suggest that agency theory provides a parsimonious explanation for why justice matters in compensation decision making.

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