TOWARD A CONCEPTUAL MODEL OF PAY EQUITY, PAY TRANSPARENCY, AND EMPLOYEE PERFORMANCE: A LITERATURE-BASED ANALYSIS

Abstract

One of the most important human resource management practices for employee motivation, organizational justice and sustainable organizational performance is seen to be the pay equity. But the mechanisms by which pay equity might affect employee performance are still somewhat disjointed, especially in the context of pay transparency. This paper builds a conceptual framework by synthesizing from literature the scholarship on pay equity, pay transparency and employee performance. The study is guided by three theories namely, Equity Theory, Organizational Justice Theory and the Social Exchange Theory, and it focuses on job roles and responsibilities, compensation policies and gender fairness to determine equivalent compensation practices and how pay transparency plays a role in impacting the performance of the employees. The design of the research in this study was qualitative with the qualitative theoretical research design and the technique in analyzing the secondary literature was content matrix analysis. The synthesis shows that transparent compensation practices lead to increased perceived fairness, trust and employee commitment, which translate into improved employee outcomes with respect to employee performance. The suggested framework also provides theoretical explanations for future empirical research and provides practical suggestions for organizations that want to develop fair and transparent compensation mechanisms.