A rapidly growing body of literature and research indicates that flexibility and equity have now come to occupy a vital place in remuneration schemes and the inability of strike a balance might results in breach of psychological contract. This brings us to some relevant concepts in the discussion of fair pay system today. First we need to understand that when an employee starts working for an organization, it establishes a relationship between the employer and the employee. We call these exchange relationships since employee promises to offer something for the payment he hopes to receive. His services include loyalty, dedication, commitment and good performance. In return he hopes to be paid in a way that would match his talents and his input.
One very important concept in this regard is that of equity theory that helps us to see why we need flexibility and fairness while creating a remuneration strategy. Equity theory studies the psychological acknowledgment of being treated equally. This is a very relevant concept and one that is being used increasing in developing fair pay system. Equity theory states that employees must feel that they are being treated fairly when they compare their pay with those of their counterparts at the same position. This is where inputs and rewards are closely studied. Employees would want to make sure that their input, if it is equal, must follow equal rewards. ...Show more