The Effect of the Perceived Justice of the Performance-Based Annual Salary System on Organizational Effectiveness

Abstract

Purpose: This study was conducted to examine the influence of organizational justice in the relationship betweenperformance based annual salary and organizational effectiveness using 269 usable questionnaires gathered fromemployees who work in Korea. Research design, data, and methodology: Firstly, exploratory factor analysis was used to assess the validity andreliability of measurement scales. Secondly, Pearson correlation analysis and descriptive statistics were conducted todetermine the collinearity problem, further confirm the validity and reliability of constructs and thus test researchhypotheses. Multiple regression analysis and Dummy regression were used to assess the magnitude and direction ofeach independent variable, and vary the mediating variable in the relationship between many independent variablesand two dependent variables. Results: Mutiple Regression analysis showed two important findings: First, performance based annual salary significantlycorrelated with job satisfaction. Second, linking performance based annual salary to organizational justice significantlycorrelated with organizational effectiveness. Statistically, this result demonstrates that organizational justice does act asa partial mediating variable in the relationship between performance based annual salary and organizational effectivenessin the studied organizations. Implications: The implications of this study can be divided into three categories: theoretical contribution, robustness ofresearch methodology, and practical contribution. In terms of theoretical contribution, the findings of this studyhighlight three major issues: firstly, Operation of performance based annual salary partially affects “procedural justice”. Secondly, Structure of performance-Based Annual Salary strongly affects “distributive justice”. Thirdly, organizationaljustice(Procedural Justice and Distributive Justice) affect organizational effectiveness. In sum, this study has provided agreat integrated model to understand the influence of perception of organizational justice in performance models ofthe studied organizations.