The Interplay of Fairness and Performance-Based Pay: Insights into Employee Compensation Satisfaction

This study examines the relationships between performance-based compensation, internal salary fairness, procedural fairness in pay determination, external pay fairness, and employee satisfaction with compensation, using a structural equation model. Data was collected from employees working in state-owned and small-to-medium-sized private enterprises in Beijing and Xi'an through a combination of direct and outsourced survey distribution methods. The model was refined based on empirical analysis of the interactions among these variables. Results show that a stronger link between performance and pay enhances both the fairness of compensation procedures and external pay fairness. Additionally, the perceived fairness of salary allocation and procedures significantly contributes to improved overall salary satisfaction.