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Wage structures, fairness perceptions, and turnover intention

16 May 2019 at 11:30 AM - 1:00 PM

Room 205b, Campus on Viale Romania, 32

Speaker: Jens Mohrenweiser , Bournemouth University, UK


Wage inequality and perceived fairness of salaries and rewards have entered the headlines. On the one side, principal-agency theory and personnel economics emphasizes the relevance of hierarchy and pay structures within firms in order to set incentives (e.g., performance pay, deferred compensation, tournaments). On the other, modern (behavioral) economic frameworks include relative wages and wage compression to account for equity, relative depreciation, aspiration levels, status, signals, altruism, and inequality aversion. Nevertheless, empirical studies about the effects of wage structures on individual behavior such as quits and quit intentions typically interpret the wage structure coefficients as consequences of fairness concerns but cannot measure to what extent individual fairness perceptions are relevant for quits and quit intentions.We extend previous research and investigate the role of individual fairness perceptions on the wage structure to quit intentions nexus. We account for the internal wage structure of several firms by generating measures for reference wages, wage dispersion and wage ranks using the entire workforce. These detailed wage structure variables allow us to disentangle opposing theoretical predictions on individual quit behavior. We augment the internal wage structure variables with individual fairness perceptions and quit intentions from surveys. As a result, we can assess that fairness perceptions of own rewards account for around fifty percent of the wage inequality effect on quit behavior.