Unjust Compensation Can Make You Sick

While once seen as not the employer’s problem, many companies are now seeing the value in prioritising the health of employees. Despite this, income inequality is on the rise and research suggests this can have negative health implications. A recent study in Germany found that employees who perceived their income to be unjustly low have significantly worse physical health. The study also found that women and those in lower social classes were more likely to perceive their income to be unjustly low.

Key Topics: Justice; Physical health; Compensation; Income inequity

Title of Reviewed Article: Unfair Pay and Health: The Effects of Perceived Injustice of Earnings on Physical Health
 
Researchers: Reinhard Schunck, Carsten Sauer, and Peter Valet (Bielefeld University).
 
Publication: European Sociological Review, 2015, Vol. 31 No. 6, pp. 655-666.

_____________________________________​_____________________________________
 
Setting the Scene
 
A relationship between income inequality and physical health has been established within and among societies (Präg et al., 2014). Wilkinson and Pickett (2010) suggested that this relationship is the result of inequality leading to status anxiety and low social capital, which impacts an individual’s health adversely, although others have argued that health inequalities may be the result of other processes (e.g. Delhey & Dragolov, 2014; Layte & Whelan, 2014). This study examines whether perceptions of compensation injustice lead to adverse physical health outcomes.
 
Research has shown that employee perceptions of injustice can lead to various negative behavioural outcomes such as absenteeism, shirking, and decreased job satisfaction (Alexander & Ruderman, 1987; Sauer & Valet, 2013). In determining the adequacy of compensation, employees do a justice evaluation (Jasso, 1978) which compares their compensation to the compensation of a perceived appropriate peer group (Markovsky et al., 2008). While research is limited, there is also some evidence to suggest that perceptions of earnings injustice can have direct health effects (e.g. Schunck et al., 2013).
 
The researchers proposed the following research questions to further examine these relationships:
 
Hypothesis 1 – “perceiving one’s earnings as unjustly low has a negative effect on one’s physical health.”
 
Hypothesis 2 – “the negative health effects of injustice perceptions will accumulate in proportion to the number of times employees perceive their earnings as unjustly low.”
 
Hypothesis 3 – “the extent to which employees perceive their earnings as unjustly low, and the frequency with which they experience their earnings as unjustly low, are inversely related to their class position.”
 
Hypothesis 4 – “the relationship between social class and health is mediated by differing perceptions of injustice of earnings.”
 
How the research was conducted
 
This study used data from the German SOEP study, which is an annual large scale study including data from over 20,000 individuals on various characteristics, including employment and income details, as well as satisfaction and health indicators.
 
SOEP data was reviewed for the years 2005 - 2010 and the final sample used by the researchers included 9,773 individuals.
 
Key Research Findings
 
66% of respondents felt that their earnings were fair, while 33% felt they were underpaid and that their compensation was therefore unjust, and 0.5% felt they were overpaid. For those who felt their compensation was unjust, on average they felt they were 47% underpaid.
 
Women were found to feel that their compensation was significantly more unjust than men did. While employees in lower social classes were found to believe that their compensation was significantly more unjust than employees in higher social classes did.
 
Hypothesis 1 was supported, as the results indicated that employees who perceive their compensation to be unjust experience adverse effects to their physical health. Similarly, those who perceived their compensation to be unjust more often over time experienced a decline in physical health, which supports Hypothesis 2.
 
The results also partially supported Hypothesis 3, as employees from lower classes were found to more frequently perceive their compensation to be unjust.
 
The results indicated that part of the relationship between social class and physical health could be explained by employees perceiving their compensation to be unjust, and as such Hypothesis 4 was supported.
 
Results Commentary
 
The hypotheses put forward in this study were largely supported, with the results validating that compensation levels perceived as unjust have a negative effect on physical health. As expected, this relationship worsens over time, with frequent perceptions of unjust compensation leading to greater physical health issues.
 
Interestingly, the relationship between compensation levels perceived as unjust and adverse physical health was greater for women. The researchers posit that this may be due to women being more vulnerable to workplace stress and may receive less support than men in the workplace (Nelson & Burke, 2002).
 
The difference by social class is also notable. It is likely that those from lower social classes, when confronted with perceived unjust compensation have less opportunity to change their circumstances and pursue equity by finding another job or reducing their effort, as reducing effort would be more evident in manual and process driven type jobs. The outcome, the researchers suggest, is that the relationship between health and social class is partly mediated by differential exposure to unjust compensation.
 
Organizational and Reward Implications
 
While the compensation injustice – health relationship is driven partly by societal issues which individual companies have limited influence over, there are actions which companies can take to limit and reduce perceptions of unjust compensation. While it is established that perceptions of unjust compensation can affect employee behaviour, such as effort and motivation (e.g. Sauer & Valet, 2013), the finding of this study that there are also possible physical health implications should be of additional concern to companies, not least because of the absenteeism and medical cost implications.
 
In the first instance, companies should review their reward practices and determine if there is an equity issue that needs to be addressed. What is also important to note is that it is the perception of injustice that affects health, and this perception may or may not align to reality. In order for companies to ensure a greater alignment between the company’s and the employee’s perception of compensation, transparency and openness by companies on compensation practices and how compensation is determined is critical.
 
Final Thoughts
 
This study makes an important contribution to our understanding of the health implications of unjust compensation by establishing the relationship between these factors and highlighting the more pronounced effect on women and those in lower social classes. While valuable, this study focuses solely on the German context and for a relatively short period, and as such the implications should be considered with that in mind. Future research in this area with a broader geographical and temporal scope would be welcomed.

_____________________________________​_____________________________________
 
Source Article: Schunck, R., Sauer, C., & Valet, P. (2015). Unfair Pay and Health: The Effects of Perceived Injustice of Earnings on Physical Health. European Sociological Review, 31(6), 655-666.
 
Published by: Oxford University Press

For further details and access to the full journal article Click Here (subscription or payment may be required).

_____________________________________​_____________________________________
 
References:
 
Alexander, S. & Ruderman, M. (1987). The role of procedural and distributive justice in organizational behavior. Social Justice Research, 1(2), 177–198.
 
Delhey, J. & Dragolov, G. (2014). Why inequality makes Europeans less happy: the role of distrust, status anxiety, and perceived conflict. European Sociological Review, 30(2), 151–165.
 
Jasso, G. (1978). On the justice of earnings: a new specification of the justice evaluation function. American Journal of Sociology, 83(6), 1398–1419.
 
Layte, R. & Whelan, C. T. (2014). Who feels inferior? A test of the status anxiety hypothesis of social inequalities in health. European Sociological Review, 30(4), 525–353.
 
Markovsky, B. et al. (2008). Modularizing and integrating theories of justice. In Hegtvedt, K. A. and Clay-Warner, J. (Eds.), Justice (Advances in Group Processes Vol. 25). Bingley: Emerald, 211–237.
 
Nelson, D. L. & Burke, R. J. (2002). Gender, Work Stress, and Health. Washington: American Psychological Association.
 
Prag, P., Mills, M. & Wittek, R. (2014). Income and inequality as social determinants of health: do social comparisons play a role? European Sociological Review, 30(2), 218–229.
 
Sauer, C. & Valet, P. (2013). Less is sometimes more: consequences of overpayment on job satisfaction and absenteeism. Social Justice Research, 26(2), 132–150.
 
Schunck, R., Sauer, C. & Valet, P. (2013). Macht Ungerechtigkeit krank? Gesundheitliche Folgen von Einkommens(un)gerechtigkeit. WSI Mitteilungen, 66, 553–561.
 
Wilkinson, R. G. & Pickett, K. E. (2010). The Spirit Level: Why Equality is Better for Everyone. London, New York: Penguin.