FROM PAY EQUITY TO PERFORMANCE: THE MECHANISMS OF WORK ENGAGEMENT AND PSYCHOLOGICAL SAFETY

This study investigates how perceived pay equity influences employee job performance through the mediating mechanisms of work engagement and psychological safety. Based on social exchange theory and organizational justice theory, we propose and test a theoretical model that elucidates the pathways between pay equity and performance. By looking at paired data from 427 employees and their direct supervisors across a number of industries, we found that (1) perceived pay equity is strongly linked to job performance; (2) work engagement fully mediates the relationship between pay equity and task performance; (3) psychological safety partially mediates the relationship between pay equity and innovative performance; and (4) leadership style moderates the effect of psychological safety on innovative performance, with transformational leadership strengthening this relationship. This study not only adds to the body of research on pay equity, but it also gives organizations real-world examples and advice on how to improve their pay management by making workplaces more psychologically safe and energizing workers.