The Effects of a Skill-Based Pay System on Organizational Commitment and Role Orientation

Abstract

<p>Faced with continuing competitive pressures over the last few decades, organizations have been driven to seek more innovative approaches to management. In the compensation management area, skill-based pay (SBP) is one such innovative approach that is being increasingly applied. However, there is a paucity of research on this approach to pay and the consequences of applying it relative to the more traditional job-based approach to pay. The current study examines how SBP affects employees' perceptions of their employment relationship with particular focus on organizational commitment and role orientation. Using data from a large sample of employees from a steel manufacturing company, it finds that selected perceived SBP plan characteristics are significant predictors of employees' beliefs about the SBP plan fairness and effectiveness, organizational commitment, and role orientation. The study discusses the various theoretical and practical implications that result from these findings.</p>