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Fairness in Reward Allocation
A customer using company A’s service may find that company A’s staffs are very helpful, enthusiastic
and knowledgeable. But these staffs are not just hired out of the blue; it is the result of a well-
implemented process with a combination of different criteria and steps including recruitment, selection,
training and development and one of most important factors is a fair system of rewarding so that
employees feel satisfied with the amount paid to themselves and their peers (Dessler, 2011). In this
paper, various dimensions of what is perceived as ‘fairness’ will be observed, analysed and critically
assessed from the point of view of various literatures and sources along with the writer’s own
perspective on the topic. In the first part, ‘equity’ and ‘reward allocations’ will be defined; followed by
an analysis of the importance of a fair system of rewarding and the role that fairness plays in the
organisation’s rewarding system, what would happen if fairness was not achieved. In the next part,
elements that might affect the implementation of fairness in the organisation’s rewarding system will be
studied, what might make such rewarding system just or unjust, what might hold the organisation back
from implementing a fair rewarding system. In the next part, the writer will go on to analyse how a fair
and just reward system may positively influence an employee’s performance, regarding factors such as
work attitudes and behaviours. In the final section, several suggestions on how fairness can be achieved
in the rewarding system will be proposed. The conclusion will summarise and present the final
implication of this paper.
Firstly, the term ‘reward allocations’ must be defined in a broader view. ‘Reward’ here does not limit
itself to the salary, bonuses or compensations that employees may receive, but it includes a wider range
of rewards that can be seen and unseen. Miller (2011) had classified the five different reward types that
employee expect when working are: career development, merit, increase in base salary, recognition and
training and development. ‘Reward allocations’ is the way in which employers distribute these rewards,
how much rewards to whom. ‘Equity’ is fairness; people assess the fairness in their situations by
comparing what they receive to what others around them receive (Bartram et al et al, 2014). ‘Fairness’
is “the quality of treating people equally or in a way that is right or reasonable” (The Cambridge Online
Dictionary). The ‘Equity Theory’ states that employees usually compare their rewards with other
colleagues in similar context to determine whether there is equity (Bartram et al et al, 2014). In Adam’s
Theory, employees also compare their inputs into the job such as: time, effort, experience, knowledge,
skills with what they receive in return, known as outputs, such as: pay, bonuses, recognitions and many
others (Martin et al, 2011).
In literatures, writers often have had various views regarding fairness in reward allocations, most
however, expressed the belief that equity in the organisation’ paying system plays an important role in
the company’s human resource scheme (Scott et al, 2011). The final objectives of these reward policies
are to help the company successfully attract, keep and encourage employees in order to achieve
organisational outcomes such as reduce staff turnover rates, retain skillful and specialised workers,
avoid changes and reduce costs (Scott et al, 2011). According to Scott et al (2011), fairness and equity
are terms and concepts that have often been addressed directly in the context of reward allocations.

Many writers have carried out studies and concluded that there is a strong link between staff members’
attitudes, behaviours, loyalty, satisfaction and the fairness in rewarding system (Cowherd & Levine,
1992; Cohen and Gattiker, 1994; Miceli and Mulvey, 2000). According to Lee (1995) and Cohen-Charash
and Spector (2001), fairness in reward allocations might also either positively or negatively affect other
elements such as absentism, performance, objectives, turnovers. In reality, these writers’ conclusion has
proved to be valid in cases that there have been serious consequences to the issue of inequity in
rewards. In 2013 year end, there had been huge strikes with the participation of thousands of fast food
and retail workers in the United States whom declared actions for higher income (The Guardian, 2013).
These workers came from well-known franchises such as McDonalds, Sears, Wendy’s, etc. In this case,
they compared their incomes with not other workers but more with the standard of livings to conclude
that there is inequity in rewards (The Guardian, 2013). In this case, Adam’s Theory is applied, that the
fast food and retail workers’ inputs into their job is much higher than the outputs which are the rewards
that the fast food chains and stores offer them. Particularly, a random fast food or retail worker is paid
$7.25 an hour, which in comparison is insufficient for them to retain their life standards to its minimum
level (The Guardian, 2013). They had to rely on food banks and government staff or else they would not
have enough to eat or warm clothes to wear for the winter (The Guardian, 2013). Hence, equity is
important because it leads to a series of either results or consequences, reflected in the employees’
performance and satisfactory, which directly affects the company’s outcomes such as turnovers, costs
and changes.
Equity plays an important role in reward allocations; it is one of the tools of defining the appropriate
amount of rewards or pays to offer employees; in other words, it has great impact on the pay rates.
Bartram et al et al (2014) seemed to agree with the views of Dessler (2011) that the result of an
employee’s performance and satisfactory is based on the fact whether they see fairness in the
allocations of rewards in the workplace. According to Dessler (2011), rewards must be compared both
externally and internally. To be specific, rewards must be evaluated based on the comparison to another
similar company or organization with in the same industry. If the company pays employees less than
other companies they might face a risk of high turnovers and will not succeed in retaining qualified
employees, according to Dessler (2011). According to Dessler (2011), rewards must also be impartial
internally. Every employee must perceive their salaries, pays and rewards as equivalent to other
employees at a similar level of position, responsibility, performance and skills. According to Dessler
(2011), consequences in lack of external equity are that there may be a movement from employees;
they might quit their jobs and apply for other companies with higher pay or they might go on strike in
places such as factories and plants. Regardless of the employees’ action, the organisation tends to have
to stand a loss in qualified employees and a high rate of turnover costs. According to Dessler (2011),
consequences in lack of internal equity might reflect in the employees’ attitudes, behaviours,
satisfactory, motivations and performances. To be specific, they might not want to come to work, they
might be demotivated, they might gossip, creating conflicts around the workplace, or worse, they might
try to harm other colleagues who receive higher rewards than them. In reality, there are many situations
where co-workers are willing to play each others such as: ruining another’s work, making another loses
their computer files, creating mental nervousness and disorders for others due to envy and jealousy.

Hence, equity plays an important role in reward allocation, it serves as pay rate indicator and means of
attracting and retaining qualified employees.
There are many factors that may either positively or negatively influence the implementation of a fair
reward system. Some of these factors include the numerous economics theories relating to workers’
pays. An example is the ‘Efficiency Wage Theory’ that proposed that it firms may be better off paying
workers more than their marginal revenue product, according to Mankiw and Taylor (2010). The
argument in support of the theory suggests that if a worker earns a high salary then they might feel
more committed to the company. In addition with a high pay, they would work hard in effort to retain
their current job and position. In this case, the pay structure of this company is general higher than that
of another company operating in the same field, which leads to external unfairness. In constrast, there
are some cases such as monopsonies, where companies pay their workers lower than normal because
that company has market power in hiring workers, which causes demotivation for employees, according
to Mankiw and Taylor (2010). This would create injustice in the rewarding systems of this monopsony
comparing with other normal firms. Another economics theory that may influence the implementation
of a fair reward system is the Human-capital theory. According to Mankiw and Taylor (2010), this theory
suggests that wages should be determined taking into account the cost of training for that position in
addition to the received performance results afterwards. In reality, there are some jobs that may require
more training and more investment into training than others, hence, they may earn more on income.
Others may look at this and perceive it to be unfair, without complete comprehension of the whole
context. Other factors that might influence the implementation of a fair reward system may include lack
of thorough and precise job evaluation and market pay surveys. According to Bartram et al (2014), job
evaluation is an internal tool which helps to design job structure and measure what the job is worth. A
market pay survey is an external measure that helps employers to research on how much other
employers pay their employees and from there, determine the appropriate and fair pay rate. Lack of
thorough and precise information may mislead the employer in determining the pay rate for his
employees. Another factor that may affect the implementation of a fair reward system is the
engagement and communication from the human resource team/manager/employer. According to
Brown (2009), often in the organisation, employees are left to deal with their own concerns and needs
without much support and engagement from the employers. Similarly, in the case of the reward system,
employers must seek to survey internally the needs and wants of the employees as well. Employers
should listen and response to the each individual cases and be engaged in every process of establishing
the reward system. According to Brown (2009), information should be announced directly and frankly to
all staff members to enhance transparency and staff members should be engaged into the process of
establishing the reward system so that they understand fully what they criteria are for determining pay
rates. Why Mr.A comes from the same university as Mr.B but receives higher salary and why Ms. C and
Ms. D are doing the same job but one is earning more than the other, are questions that must be
explained clearly and widely to all staff members to help them have a more thorough perspective.
There are many positive results from the employee’s work outcomes once they perceive that there is a
fair reward system. While Bartram et al (2014) argues that if equity is perceived within the organisation,
then the employee’s attitudes and behaviours are expected to remain the same. On the other hand, if

inequity is perceived, then it may provoke the employees to change the situation to obtain equity.
However, Ceplenski (2013) holds an adverse view when suggesting that perceived fairness would result
in growing trust from the staff member upon the company. In addition, Ceplenski (2013) also defended
his view in saying that equity in reward system helps to improve performance and commitment and
devotion to the organisation, reduces negative work behaviours, increases employees’ helpfulness
toward their colleagues and reduces staff turnovers. Agwu’s research findings on the Impact of Fair
Reward System on Employees Job Performance in Nigerian Agip Oil Company (2013) also seem to agree
with Ceplenski’s points in that a fair reward system creates harmony in the workplace for both
employers and employees. It helps staff members become satisfied and the whole organisation
becomes integrated. These views also fit in well with the research findings of Scott et al (2011) on
fairness in the reward system namely “Reward Fairness: Slippery Slope or Manageable Terrain?. In Scott
et al (2011)’s research, it is found that over 50% of reward professionals thought that fairness in reward
system is extremely influential in employee engagement, 53% thought that equity in reward could
improve employee motivation and 55% thought that it could increase satisfaction. Scott et al (2011)
concluded that fairness has a strong impact on the employee “commitment and tenure”, hence to retain
a high degree of staff motivation; equity should be managed and maintained.
At last, this paper will discuss some suggestions and recommendations that may help to retain a just
reward system within the organisation. Brown (2009) suggested that in order to achieve a fair paying
system, there are four main steps that we must take. First, we should be strategic in developing the
reward system. A company should write up a clear, strategic proposal for the reward system that puts
heavy emphasis on justice, equity and non-discrimination within the company. According to Brown
(2009), this paper-based proposal must define clearly the meaning of fairness in the specific context of
the company. The criteria that serve as a foundation for pay differences should also be clearly defined
and communicated, showing transparency, directiveness and integrity in the company’s operation. The
second thing to do is to do everything fair and square. The employers should conduct regular pay review
and look into pay gaps among different parts of the companies, among genders, ages, backgrounds, etc;
make comparison among different groups of employees and look into related promotions and career
development opportunities available for these employees. The employees should observe both
distributive justice and procedure justice in order to satisfy both sides of the matter. Which means not
only do the amount that employees receive make a difference but the tools and measures the company
uses to come up with such amount is also important. According to Brown (2009), this implies that the
employers need to look into the perception of their staffs regarding equity and the system of pay
determination that they use, for example, job evaluation and performance appraisal. The third factor
has been mentioned earlier, that according to Brown (2009), it is highly important the line managers be
engaged in the process of a fair reward system development. It is both important that the line managers
understand what his staffs want and that the staff members understand what the objectives of the
company are in establishing such a policy. It is highly essential that both sides are honest, open,
integrated and be transparent about the reward policy. It is also crucial that employers and employees
learn to listen and understand each others’ perspectives, needs, wants, difficulties and interests so that
both parties can be integrated as one whole organisation.

In general, a fair reward system is one of the key elements that help the company to become one
strong, united and sustainable organisation. Fairness is important because it can either directly or
indirectly influence the outcome of the employees’ performance and satisfactory, hence may create
changes on organisation in terms of employee turnover, costs and quality of workers. Fairness in the
reward system plays the role of a pay rate indicator and a tool for attracting and retaining qualified
workers for the company. In addition, there are various factors that may influence the implementation
of a fair reward system in an organisation such as the economics theories (e.g. The Wages Efficiency
Theory, the Human-capital Theory, etc.) and issues such as an insufficient job evaluation or an imprecise
pay survey. Furthermore, issues such as lack of effective communication within the organisation are also
very important in that it is the major tool that helps to alleviate misunderstandings among employers
and employees and among employees themselves. Regarding the influences of a fair reward system
upon employees’ work outcomes, there are many studies that have confirmed that a fair reward system
creates positive working attitudes and behaviours on employees, it makes them more satisfied,
motivated, committed and helps the company reduces high staff turnover. At last, several suggestions
have been proposed regarding how an organisation could establish and maintain a just reward system,
because the important of justice in the organisation in general and in the reward system in particular, is
clear.
Reference
Bartram, T.K. et al (2014). Human Resource Management: Strategy, People, Performance. 5th
edition.
McGraw-Hill.
Scott, D. and McMullen, T. and Royal, M. (2011). Reward fairness: slippery slope or manageable terrain?
[Online] Available at: http://www.worldatwork.org/waw/adimLink?id=53154 Accessed 16 September,
2014.
Cowherd, D.M., and Levine, D.I. (1992). Product Quality and Pay Equity between Lower-Level Employees
and Top Management: An Investigation of Distributive Justice Theory. Administrative Science Quarterly,
37: 302-320.
Cohen, A., and Gattiker, U.E. (1994) Rewards and organizational commitment across structural
characteristics: A meta-analysis. Journal of Business and Psychology, 9(2), 137-157.
Miceli, M.P., and Mulvey, P.W. (2000) Consequences of satisfaction with pay systems: Two field studies.
Industrial Relations. 39(1), 62-87.
Miller, S. (2011). Reward Practices Impact Perceptions of Fairness. Society for Human Resource
Management. 22(5), 13-15.
Gabbatt, A. (2013). US fast-food workers strike over low wages in nationwide protests. The Guardian.
[Online] Available at:

http://www.theguardian.com/world/2013/dec/05/fast-food-workers-strike-minimum-wage Accessed
16 September, 2014.
Mankiw, N.G. and Taylor, M.P. (2010). Economics. Special edition. Hampshire: Cengage Learning.
The Cambrige Online Dictionary. [Online] Available at:
http://dictionary.cambridge.org/dictionary/british/fairness Accessed 16 September, 2014.
Brown, D. (2009). Fairness: The Ultimate Reward Goal. Employment Studies. [Online] Available at:
http://www.employment-studies.co.uk/pdflibrary/op16.pdf Accessed 16 September, 2014.
Ceplenski, C. (2013). Employee Rewards: The Importance of Perceived Fairness. Human Resource Daily
Advisor. 19 (3). 5-7.
Dessler, G. (2011). A Framework For Human Resource Management. 6th
edition. New Jersey: Pearson.
Martin, M. and Whiting, F. and Jackson, T. (2011). Human Resource Practice. 5th
edition. London: CIPD.
Agwu, M.O. (2013). Impact of Fair Reward System on Employes Job Performance in Nigerian Agip Oil
Company. British Journal of Education, Society & Behavioural Science. 3(1): 47-64.

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