Pay knowledge and referents in a tiered-employment setting.

Organizations with two-tier compensation structures place new employees on pay scales which are lower than the pay scales of employees hired before the tiers were implemented. Such pay structures are controversial because they violate the basic union tenet of equal pay for equal work, and thus

have been the subject of considerable speculation regarding their impact on employees (Cappelli and Sherer, 1990). Two-tier plans are found more frequently in companies undertaking expansion or where there are high rates of turnover (Martin and Heetderks, 1990), conditions often found in the retail food industry. Sichenze (1989) found that 91% of the retail food contracts covering more than 1,000 employees had wage tiers; 88% of those were permanent, where new employees never reach the high-tier level unless the labor contract is changed. She further noted that tiers were first negotiated in this industry in the 1960s. Thus, it differs from other industries where tiers are common, such as the airline industry. There, tiers were first negotiated in 1983 but were usually temporary, that is, over time, new employees could move to the higher pay scale of those previously hired (Cappelli and Harris, 1985; Cappelli and Sherer, 1990).

Research in tiered-employment settings has found that employees on various tier levels differ in their attitudes toward pay, commitment, and job satisfaction (Cappelli and Sherer, 1990; Lee and Martin, 1991; Martin and Heetderks, 1990; Martin and Peterson, 1987; McFarlin and Frone, 1990). That research speculated that a major reason such attitudes differ is that employees in various tier groups use different pay referents (standards by which one determines pay fairness) in evaluating their work situation. No study has tested this assumption, however, and little empirical work has been done to examine the combined effects of tiers and pay referents on attitudes.

Due to the inherent inequities of tiers, employee perceptions of pay fairness may be especially salient (Martin and Peterson, 1987). These perceptions may be explained partially by equity theory (Adams, 1965; Mowday, 1983). According to equity theory, individuals compare the ratios of their perceived rewards (outcomes) to their contributions (inputs) with the perceived ratios of other individuals (social referents), or with their own experiences and expectations (self referents, unique to the individual).(1) Social referents may be either external to the organization (external referents) or within it (internal referents) (Hills, 1980). Employee judgments of pay fairness are dependent on the social and self referents used, which in turn are linked to pay attitudes (Goodman, 1974; 1977; Ronen, 1986; Scholl et al., 1987). Further, research has suggested that employees may believe they are equitably paid in relation to certain referents and inequitably paid in relation to others (Scholl et al., 1987).