Compensation in Organisations: Current Research and Practice

Citation

Lockyer, C. (2001), "Compensation in Organisations: Current Research and Practice", Employee Relations, Vol. 23 No. 1, pp. 94-104. https://doi.org/10.1108/er.2001.23.1.94.1

Within the human resource management literature the treatment of compensation and rewards systems is primarily descriptive and aimed at managers to “equip them with the tools of people management” (Bach and Sisson, 2000, p. 4). The focus is essentially descriptive and prescriptive with an outdated and inadequate treatment of the motivational bases of pay systems. It is pleasing to come across a text which rises above the banality of “how to” texts, and which offers a critical review of research and understanding of compensation from a psychological perspective.

This review of current research and practice may be assessed in three ways. First, as a valuable contribution to our understanding of the operation of reward systems, and of the theoretical underpinning to compensation. Second, it highlights the gaps in research of current developments in pay, Third, it is a timely reminder of the paucity of the conventional treatment of pay and reward in the human resource management literature.

This is the 13th text in the Frontiers of Industrial and Organisational Psychology Series established by the Society for Industrial and Organisational Psychology. Each chapter reviews recent research, considers the limitations and suggests future research. Overall this is an excellent and valuable text. The reviews of research are methodical, well constructed and draw on research reported in the leading journals – Journal of Applied Psychology, Personnel Psychology and Organisational Behaviour. The research is up to date, making use of material published between 1986‐1998 and discusses the current limitations and gaps in our understanding.

The ten chapters are organised into three sections. Part One examines the determinants and consequences of compensation. The first chapter offers an excellent critical review of recent psychological research on the determinants of pay, the limitations and suggestions for further research. Chapters three and four continue the excellent standard and review a wide range of recent literature on job satisfaction, incentives and motivation, and again, indicate issues and areas for future research. The review of the relationship between procedural justice, distributive justice and pay satisfaction illustrates a literature which most texts on performance related pay appear ignorant of, or cover superficially. Likewise the broad review of motivational theories indicates the extent to which our understanding of motivation has moved on from that offered in most mainstream human resource management texts.

The five chapters in Part Two examine more recent compensation issues. Chapter five reviews the relationships between pay systems and firm performance. In this chapter evidence is presented as to whether or not there are best practices in terms of pay strategies, or whether effectiveness depends on the contingent approach. The author concludes more work is necessary on research methods and measures, especially with respect to construct validity. Again the quality of this analysis and argument is not matched by other recent texts on reward management. Chapter six considers how changes in technology, business strategy, organisation structure and job design are impacting on broadbanding, knowledge/skill‐based pay, variable pay and share ownership. Chapter eight focuses on the relationship between pay and the psychological contract. The first section examines the impact of cognitive biases in information processes and hence how differing types/meanings are given to aspects of compensation. The chapter offers an interesting typology of the relationship between types of psychological contracts and pay systems. Chapter nine explores the relationships between pay and how managers perceive risk and make decisions in risky choice situations.

Part Three, summarises the most important trends, conclusions and research recommendations from the preceding nine chapters. It indicates additional areas for future research including: longitudinal research and studies of change, improved measurement, levels of analysis, multiple measures and contextual factors.

The editors note that the primary objective in the volume was “to increase Industrial and Organisational psychologists’ interest in studying compensation” (p. 351), notwithstanding the long list of classic studies by amongst others, Haire et al. (1963), Opsahl and Dunnette (1966) and Lawler (1971). They have succeeded in producing a text that will be of interest to anyone studying reward systems.

Compensation in Organisations is based on a wide and detailed understanding of the Industrial and Organisational Psychological literature, knowledge of recent research and an appreciation of the current debates. It is a valuable contribution to our understanding of reward management and is a clear reminder of the extent to which the psychological contribution to our understanding of pay systems has been seriously neglected by the mainstream human resource and performance management literature.