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Fairness in performance evaluation and itsbehavioural consequencesMahfud Sholihin a & Richard Pike ba Universitas Gadjah Mada, Indonesiab School of Management, Bradford University, Emm Lane, Bradford, BD9 4JLPhone: +44 (0)1274 234393 Fax: +44 (0)1274 234393 E-mail:Published online: 04 Jan 2011.

To cite this article: Mahfud Sholihin & Richard Pike (2009) Fairness in performance evaluationand its behavioural consequences, Accounting and Business Research, 39:4, 397-413, DOI:10.1080/00014788.2009.9663374

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Fairness in performance evaluation and itsbehavioural consequencesMahfud Sholihin and Richard Pike*

Abstract A recent paper in Accounting and Business Research by Lau et al. (2008) offers systematic evidence to explainwhether managers perceptions on fairness of performance evaluation procedures affect attitudes such as job satisfaction; andif it does, the different behavioural processes involved. Our paper re-examines Lau et al.s model and hypotheses to assess theexternal validity of their ndings, based on a very different sample of managers. Drawing on recent organisational justiceliterature, it further develops the model and examines the potential interaction effects of fairness of performance evaluationprocedures and other variables on job satisfaction. Finally, it extends the outcome variable to include manager performance.Using survey responses from 165 managers, supported by 24 interviews, drawn from three major organisations in themanufacturing and nancial services sectors, we nd that Lau et al.s results on the indirect effects of fairness of performanceevaluation procedures on job satisfaction are generalisable to other organisational settings and managerial levels. However,using their model we do not nd support for the outcome-based effects through distributive fairness. Developing a revisedmodel we observe that the effects of distributive fairness on job satisfaction are indirect via organisational commitment.When the model is further developed to incorporate performance as the outcome variable, we observe similar ndings.Keywords: commitment; fairness; performance; satisfaction; trust

1. IntroductionThe role of fairness in the workplace and its impacton organisational effectiveness forms an importantelement of what has been termed organisationaljustice research (Greenberg, 1990). Much of theliterature on organisational justice focuses on theantecedents and consequences of two types ofsubjective perceptions: (1) distributive justice,which considers the fairness of outcome distribu-tions; and (2) procedural justice, which considersthe fairness of the procedures used to determineoutcome distributions.1 This literature suggests thatenhanced fairness perceptions can improve organ-isational outcomes (Colquitt et al., 2001).Management accounting controls, including per-

formance evaluation procedures, should bedesigned to engender positive attitudes and behav-iour (Merchant and Van der Stede, 2003), and theperceived fairness of such procedures is expected togenerate important behavioural consequences. Thispaper explores the behavioural consequences ofperceptions of fairness in performance evaluation.Early systematic studies on procedural fairness in

the management accounting and control eld wereundertaken by Hopwood (1972) and Otley (1978).Hopwood (1972) found that performance evalu-ation procedures are associated with perceivedfairness. Subsequent studies of procedural fairnessin the management accounting literature tend tofocus on budgeting contexts, examples being seenin Magner andWelker (1994), Magner et al. (1995),Lindquist (1995), Libby (1999, 2001), Lau and Lim(2002), Wentzel (2002), Staley and Magner (2006),and Lau and Tan (2006). Broadly speaking, thebudgeting literature nds that fairness is negativelyassociated with dysfunctional attitudes and behav-iour, such as job-related tension and budgetaryslack, and enhances functional behaviour, such astrust and organisational commitment, and out-comes, such as task satisfaction, job satisfactionand performance. In other management accountingcontexts, Lau and Sholihin (2005) found proceduralfairness to be an important variable mediating therelationship between performance evaluation styleand job satisfaction; while Giraud et al. (2008)found fairness to be an important factor in imple-menting the controllability principle in the design ofmanagement control systems.Lau et al. (2008) argue that fairness of procedures

for performance evaluation affects job satisfactionthrough two distinct processes: The rst process isoutcome-based through fairness of outcomes (dis-

CCH - ABR Data Standards Ltd, Frome, Somerset 17/8/2009 05 ABR Pike.3d Page 397 of 414

*Mahfud Sholihin is at the Universitas Gadjah Mada,Indonesia and Richard Pike is at Bradford Univesity. Theywish to acknowledge the assistance of John Steele, MarkMurphy, and Abiola Fakeye in data collection and are grateful totwo anonymous reviewers for their helpful suggestions.Correspondence should be addressed to: Prof. Richard Pike,

School of Management, Bradford University, Emm Lane,Bradford BD9 4JL. Tel: +44 (0)1274 234393; Fax: +44 (0)1274 546866; E-mail: [email protected] paper was accepted for publication in March 2009.

1 These two forms of justice are developed from the earlierworks of Adams (1965), Deutsch (1975), Thibaut and Walker(1975), and Leventhal (1980).

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tributive fairness) . . . The second process is non-outcome-based through trust in superior and organ-isational commitment (ibid: 121). Their resultssupport the proposed model (see Figure 1) that theeffects of procedural fairness (fairness of perform-ance evaluation procedures) on job satisfaction areindirect via distributive fairness (outcome-based);and via trust and organisational commitment (non-outcome-based). Controlling for these variables, thedirect effect of fairness of performance evaluationprocedures on job satisfaction was not signicant.Lau et al. (2008) offer an important step towards

developing a unied theory on procedural fairnesseffects. The current paper takes a further step in thisregard in terms of the research sample, design andmodel development. Lau et al. (2008) drew theirsample from a population of highly qualied andexperienced managers from the health servicesector in an Australian state. The generalisabilityof their ndings to other contexts and cultures, suchas different industry sectors, managerial levels, andcountries, has yet to be demonstrated. Theyacknowledge this limitation:

As our sample was drawn from managerial levelemployees from the health service sector, theextent to which the nature of this sample mayhave inuenced the results is unclear. Hence,generalising the results to other levels of employ-ees and to other sectors should be undertakenwith caution (ibid: 132).

Leung (2005) calls for researchers to examineprocedural justice development cross-culturally and

notes that a universal concern of justice . . . doesnot mean that all justice effects are necessarilygeneralisable . . . (ibid: 557). The rst aim of ourpresent study is therefore to examine the externalvalidity of Lau et al.s (2008) ndings by retestingthe hypotheses using their proposed model on avery different sample. Whilst their study employs asample of 110 highly qualied and experiencedmanagers from the health service sector in anAustralian state, our study uses a sample of 165managers, mostly at middle and lower manageriallevels and across various functions, from largeprivate sector organisations in the manufacturingand nancial services sectors with head ofcesbased in Europe and Africa. These ndings aresupported by the ndings from 24 interviews with asample of responding managers.A second limitation of the study by Lau et al.

(2008) is that while it explores the indirectrelationship of procedural fairness on job satisfac-tion, it fails to consider the indirect effects ofdistributive fairness. Recent literature on organisa-tional justice (e.g. Colquitt et al., 2001) suggeststhat organisational commitment is affected by both.We argue that the effect of distributive fairness onjob satisfaction is primarily indirect via organisa-tional commitment, and should be considered in themodel. The second objective therefore is to developthe model to examine both the direct and indirecteffects of distributive fairness on job satisfaction.Another important issue concerns the possible

interaction effects between procedural fairness andother variables, such as trust and organisational


Figure 1The effect of fairness of performance evaluation procedures on job satisfaction

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commitment, on job satisfaction. For example,while Lau et al. (2008) found that proceduralfairness in performance evaluation is positivelyassociated with job satisfaction, it is not clear whathappens in cases where trust in superior is high butprocedural fairness is low. The third objective ofthis paper therefore examines whether the negativeeffect on job satisfaction of low levels of fairness inevaluation procedures can be compensated byhigher levels of trust and organisational commit-mentFinally, Lau et al. did not consider employee

performance in their study, but recognise it is animportant dependent variable in studying proced-ural fairness effects and suggest that future researchcould investigate the processes by which proced-ural fairness affects employee performance (Lau etal., 2008: 133). This view is supported by, forexample, Lind and Tyler (1988) and Wentzel(2002). In a review of the fairness literature,Colquitt et al. (2001) identify the lack of studieson the effect of procedural fairness on performancecompared with other outcomes, and that it is . . .the most unclear of all relationships in the organ-isational justice literature (ibid: 430). Given thisobservation, and recognising that the manner bywhich procedural fairness affects performance is acritical issue in the design of management account-ing and control systems, we incorporate perform-ance in the model and argue that the perceivedfairness in performance evaluation affects managerperformance, although the effects may well beindirect. Hence our fourth objective is to ascertainwhether procedural fairness affects performanceand, if so, whether it affects performance in thesame manner as job satisfaction.The ndings of this paper offer a number of

signicant insights. First, the study offers broadsupport for Lau et al.s (2008) ndings on theindirect effects of fairness of performance evalu-ation procedures on job satisfaction. Given the verydifferent samples for the two studies, these ndingsappear to be generalisable to other contexts.Second, this study argues that Lau et al.s (2008)model is incomplete and requires further renementto incorporate the signicant indirect effects ofdistributive fairness. Third, the study nds that formanagers with low levels of perception of proced-ural fairness in their performance evaluation pro-cesses, job satisfaction can be increased when trustand organisational commitment are high. Fourth, itoffers empirical support for the survey ndingsthrough follow-up interviews. Finally, it providesempirical evidence on the process of how fairness ofperformance evaluation affects managerial per-

formance, an unresolved issue in justice theory(Colquitt et al., 2001; Lind and Tyler, 1988).The rest of the paper is organised as follows. The

next section will discuss the literature review andhypotheses development. This will be followed by apresentation of the research method, researchndings, conclusions, limitations, and suggestionsfor future research.

2. Literature review and hypotheses2.1. Procedural fairness (justice)2

The term procedural justice was rst used byThibaut et al. (1974) and Thibaut andWalker (1975)to refer to the social psychological consequences ofprocedural variation, with particular emphasis onprocedural effects on fairness judgments. Thibautand Walker (1975) addressed different concernswith respect to procedure and dispute resolutions.Their study focused on process control and outcomeas the key variables affecting procedural justice.They found that: (1) perceptions of proceduraljustice result in increased satisfaction; (2) proced-ural justice is the most important determinant ofprocedural preferences; and (3) high process controlprocedures lead to high procedural justice judg-ments.Based on these ndings, Thibaut and Walker

(1978) developed a theory advocating that fordisputes involving strong conicting interests,procedures which are in accordance with societaldenitions of fairness, rather than objective criteriaof fairness, should be used. This theory is importantbecause it acknowledges that there are differentfairness criteria, and that different procedures areneeded to settle different types of disputes. Lind andTyler (1988: 36) noted that the theory is aprescriptive theory of procedural justice and con-cerns most with achieving an integration of socialpsychology knowledge that could guide decisionsabout when various procedures might have the bestoverall result for conict resolution.The theory of procedural justice developed by

Thibaut and Walker (1978) is based mainly onresearch ndings in a legal setting and dealsprimarily with the effects of process control indispute resolution. Consequently, it embraces arelatively restricted view of fairness. Leventhal(1980) and Leventhal et al. (1980) argue thatprocedural justice is an important determinant ofperceived fairness not only in legal contexts, butalso in the context of almost any allocation decision.These studies stimulated the extension of proced-ural justice research from legal settings to organ-


2We use the terms fairness and justice interchangeably.

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isational settings. Subsequent research in organisa-tional settings found that procedural justice judg-ments played a major role in affectingorganisational behaviour (Lind and Tyler, 1988;Colquitt et al., 2001; Blader and Tyler, 2005). Thiscan be explained using the self-interest model andgroup value model (Lind and Tyler, 1988; Bladerand Tyler, 2005). The self-interest model argues thatpeople prefer fair procedures because they aremotivated to maximise their personal outcomes,whilst the group value model assumes that peoplevalue their group membership not simply foreconomic reasons, but also for social and psycho-logical reasons. Whilst these two models providedifferent arguments for why individuals prefer fairprocedures, they both propose that enhanced fair-ness perceptions can improve organisational out-comes, such as organisational commitment, jobsatisfaction, and performance. However a meta-analytic review by Colquitt et al. (2001) suggeststhat such relationships are complex.

2.2. Fairness of performance evaluationprocedures, job satisfaction, and performanceBased on the work of Lind and Tyler (1988) andearlier accounting studies which linked perform-ance evaluation procedures with fairness perception(e.g. Hopwood, 1972; Otley, 1978) and job satis-faction (Brownell, 1982; Harrison, 1992), Lau et al.(2008) proposed that fairness of performanceevaluation procedures affects job satisfaction, butthe effect may well be indirect via: (1) fairness ofoutcomes (distributive fairness); and (2) trust insuperior and organisational commitment.Prior empirical studies, in various contexts, have

found that procedural fairness affects performance(Lind and Tyler, 1988). Within an accountingcontext, Libby (1999, 2001), Wentzel (2002) andLittle et al. (2002) found that procedural fairnessinuenced performance. Expectancy theory sug-gests that when subordinates perceive that theprocedures used to evaluate their performance arefair, they are motivated to perform better (Vroom,1964; Porter and Lawler, 1968). Thus, with fairperformance evaluation procedures, subordinateswill be motivated to perform better and this is likelyto be reected in their performance. Conversely,when subordinates perceive that the performanceevaluation procedures are unfair, they will not bemotivated to perform because good performancemay not be recognised. A recent empirical study byKominis and Emmanuel (2007) supports thisargument. Using a sample of middle managers ina large UK-based nancial institution they foundthat motivation is affected by the transparency of

the performance-rewards link via the value ofextrinsic rewards. In addition, they found that thetransparency of the performance-rewards link isaffected by the accuracy of measures. As transpar-ency and accuracy are important components ofprocedural fairness (Leventhal, 1980), it can beconcluded that fairness is an important determinantof performance motivation. However, Lind andTyler (1988) argue that the relationship betweenwork performance and attitudinal variable is farfrom straight forward . . . and it is probablyunreasonable to expect any attitudinal variable,including judgment of procedural fairness, to havesimple effects on performance (ibid: 188). Wetherefore propose that fairness of performanceevaluation procedures affects performance, but itseffects on performance are relatively complex andindirect, as will be discussed later.

2.3. Intervening effect of fairness of outcomes on therelationship between fairness of performanceevaluation procedure and job satisfaction.Based on the instrumental model, e.g. the controlmodel (Thibaut and Walker, 1975) and self-interestmodel (Lind and Tyler, 1988), and previous studiesin management accounting (e.g. Lindquist, 1995),Lau et al. (2008) proposed that fairness of perform-ance evaluation procedure is associated with fair-ness of outcomes which eventually will lead tohigher job satisfaction. Their hypotheses, which wewill re-examine, are:

H1a Fairness of performance evaluation proced-ures is positively related to fairness ofoutcomes (distributive fairness) (path FPFO).

H1b Fairness of outcomes is positively related tojob satisfaction (path FOJS).

H1c Fairness of performance evaluation proced-ures has an indirect effect on job satisfactionvia fairness of outcomes (path FPFOJS).

2.4. Intervening effects of trust on the relationshipbetween fairness of performance evaluationprocedure and job satisfaction.Based on the group value model, Lau et al. arguethat fairness of procedures may therefore enhancejob satisfaction, not merely because it leads to faireroutcomes but because it may engender positiveoutcomes associated with group membership,including trust in superior and organisational com-mitment (Lau et al., 2008: 125).From an empirical perspective, the proposition

that trust mediates the relationship between fairnessof performance evaluation procedures on job satis-



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faction is based, rst, on previous ndings inmanagement accounting (Magner and Welker,1994; Magner et al., 1995; Staley and Magner,2006) which suggest that fairness of performanceevaluation procedures is likely to affect trust, and,second, on ndings in organisational studies (e.g.Driscoll, 1978) and in management accounting (e.g.Lau and Sholihin, 2005), which suggest that trust isassociated with job satisfaction.Magner and Welker (1994) investigated the

effects of procedural justice in a budgetary resourceallocation context, examining the effect of proced-ural justice on managers attitudes towards theirorganisation (organisational commitment) andorganisational authorities (trust in superiors).Employing structural equation analysis, theyfound that procedural justice in budgetary resourceallocation was positively associated with organisa-tional commitment and trust in superiors. Magner etal. (1995) found that subordinates trust in superiorsand organisational commitment are higher whenthey are allowed to participate in setting budgets. Inthat participation is a mechanism for improvingprocedural fairness, their ndings support theargument that procedural fairness is an importantdeterminant of trust and organisational commit-ment. Staley and Magner (2006) develop and test amodel based on social exchange theory on whetherprocedural and interactional budgetary fairnessreduce managers propensity to create budgetaryslack by way of enhancing managers trust in theirimmediate supervisor. Using a questionnaire surveywith a large sample of US Federal governmentmanagers and applying structural equation analysisthey found that procedural fairness positivelyaffects trust in superiors. Similarly, Lau and Tan(2006) found that procedural fairness is positivelyassociated with trust.Driscoll (1978), in a survey of college faculty

members, found that trust is positively associatedwith satisfaction. Similar ndings are found in amanagement accounting context by Lau andSholihin (2005).Following Lau et al. (2008), we hypothesise:

H2a Fairness of performance evaluation proced-ures is positively related to subordinates trustin their superiors (path FPTrust).

H2b Trust in superiors is positively related to jobsatisfaction (path TrustJS).

H2c Fairness of performance evaluation proced-ures has an indirect effect on job satisfactionvia trust in superiors (path FPTrustJS).

2.5. Intervening effects of organisationalcommitment on the relationship between fairness ofperformance evaluation procedure and jobsatisfaction.With regard to the intervening effects of organisa-tional commitment on the relationship betweenfairness of performance evaluation procedures andjob satisfaction, Lau et al.s (2008) hypotheses arebased on the ndings of previous managementaccounting studies (e.g. Magner and Welker, 1994;Magner et al., 1995) and organisational studies(Folger and Konovsky, 1989; McFarlin andSweeney, 1992), which suggest that fairness ofevaluation procedures is likely to be associatedwith organisational commitment, and that com-mitted employees are likely to experience higherjob satisfaction (Bateman and Strasser, 1984;Mathieu and Zajac, 1990; Vandenberg andLance, 1992).Folger and Konovsky (1989) investigated

whether procedural justice affects trust and organ-isational commitment. Using a sample of employ-ees in a privately owned manufacturing company inthe US, they found that procedural justice ispositively and signicantly associated with trustand organisational commitment. Another studyconducted by McFarlin and Sweeney (1992) sup-ports Folger and Konovskys (1989) ndings.Using data gathered from a questionnaire surveyof employees in a US bank, McFarlin and Sweeney(1992) found that procedural justice is positivelyassociated with organisational commitment. Alongitudinal study (Bateman and Strasser, 1984)of nursing department employees found that organ-isational commitment is positively correlated withjob satisfaction, and that organisational commit-ment is an antecedent of job satisfaction rather thanan outcome. A meta analysis by Mathieu and Zajac(1990) found that organisational commitment ispositively correlated with job satisfaction and thestrength of the relationship is unequivocal. Indeed,the correlation between organisational commitmentand job satisfaction is found to be the strongest andmost consistent compared to other correlates (jobinvolvement, stress, occupational/professionalcommitment, and motivation). Vandenberg andLance (1992) examine the causal relationshipbetween job satisfaction and organisational com-mitment. Using structural equation models in alongitudinal research design with a sample ofmanagement information systems professionals,their results supported the commitment-causes-satisfaction model.


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Based on the above literature we hypothesise:

H3a Fairness of performance evaluation proced-ures is positively related to organisationalcommitment (path FPOC).

H3b Organisational commitment is positivelyrelated to job satisfaction (path OCJS).

H3c Fairness of performance evaluation proced-ures has an indirect effect on job satisfactionvia organisational commitment (path FPOCJS).

2.6. Trust and organisational commitmentDrawing on the work of Ketchand and Strawser(2001), Lau et al. argue that trust in supervisors maybe associated with organisational commitmentbecause subordinates will tend to perceive theirorganisation through the supervisors actions:

Consequently if the subordinates harbour posi-tive (or negative) feelings toward their superiors,who are, after all, acting on behalf of theorganisation, they (the subordinates) are alsolikely to harbour similar feelings toward theirorganisation. This suggests that a high level oftrust in the superiors is likely to be translated intoa favourable attitude towards the organisation.This may lead to the subordinates bonding withthe organisation, and hence, high organisationalcommitment (Lau et al., 2008: 126).

Lau et al.s (2008) argment is in line with that ofZand (1997) who suggests that trust betweenindividuals will greatly increase their joint problemsolving effectiveness. This, in turn, will increasetheir commitment to each other, and satisfactionwith their work and their relationships.This gives rise to the hypothesis:

H4 Trust in superiors is positively related toorganisational commitment (path TrustOC).

2.7. Distributive fairness and performanceEquity theory suggests that fairness of outcomes(distributive fairness) affects performance (Colquittet al., 2001). Leventhal (1976) noted that equitablerewards may foster higher productivity. He arguesthat equitable allocation is instrumental to increas-ing performance in that poor performers are likelyto change their performance in order to obtainhigher reward. For good performers, equitableallocation will motivate them to work harder toimprove their performance to get even higherrewards. We therefore introduce two new hypoth-eses:

H5a Fairness of outcomes is positively associatedwith performance (path FOPerformance).

If H1a (Fairness of performance evaluationprocedures is positively related to fairness ofoutcomes) and H5a are both supported, we expectthat the effect of procedural fairness on performanceis indirect through fairness of outcomes.

H5b Fairness of performance evaluation proced-ures has an indirect effect on performancethrough fairness of outcomes (path FPFOPerformance).

2.8. Trust and performanceZand (1997) denes trusting behaviour as awillingness to increase vulnerability to anotherperson whose behaviour cannot be controlled, insituations in which a potential benet is much lessthan a potential loss if the other person abuses thevulnerability. Further, he suggests that people whotrust each other will greatly increase their problem-solving effectiveness and work together moreconstructively. Trusting behaviour can improvedecision quality and its implementation. Higherdecision quality should give rise to higher perform-ance. Lippit (1982) argues that the trust betweenorganisation members increases the capacity forproblem-solving and improves performance.Similarly, Reina and Reina (1999: 8) note thatdirectly or indirectly trust is related to individual,group, and organisational performance. This givesrise to the further hypotheses:

H6a Trust is positively associated with perform-ance (path TrustPerformance)

If H2a (Fairness of performance evaluationprocedures is positively related to subordinatestrust in superiors) and H6a are both supported, weexpect that the effect of procedural fairness onperformance is indirect through trust in superiors.

H6b Fairness of performance evaluation proced-ures has an indirect effect on performancethrough trust in superiors (path FPTrustPerformance).

2.9. Organisational commitment and performanceTwo important characteristics of organisationalcommitment are a strong belief in and acceptanceof organisational goals and values, and a willing-ness to exert considerable effort on behalf of theorganisation (Porter et al., 1974; Angle and Perry,1981). With such characteristics, it is likely thatorganisational commitment will lead to higherperformance. Empirical studies in the accountingliterature (e.g. Nouri and Parker, 1998; Chong andEggleton, 2007) found that organisational commit-ment is associated with performance. This study



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therefore hypothesises that organisational commit-ment affects performance.

H7a Organisational commitment is positivelyassociated with performance (OCPerformance).

If H3a (Fairness of performance evaluationprocedures is positively related to organisationalcommitment) and H7a are both supported, weexpect that the effect of procedural fairness onperformance is indirect through organisationalcommitment.

H7b Fairness of performance evaluation proced-ures has an indirect effect on performancethrough organisational commitment (pathFPOCPerformance).

3. Method3.1. Survey administrationThe Lau et al. study used 110 experienced managersin the health services sector of an Australian state astheir sample. Our sample differs in two mainrespects: rst, it focuses on all managers withcertain criteria participating in the organisationsperformance evaluation system and, second, itfocuses on three major private sector organisationsin two different sectors. This sample will enable usto assess the extent to which Lau et al.s (2008)ndings can be generalised to wider settings. Thethree organisations operate in the manufacturingand nancial services sectors, with head ofces inEurope and Africa.After obtaining senior management permission

to conduct the independent research study, 296questionnaires were sent to the selected sampletogether with a covering letter explaining thepurpose of the study and assuring data condenti-ality. The distribution of the survey instruments is asfollows: 102 to a UK-based organisation in thenancial services sector, 99 to a global manufac-turing company with a Swiss parent company, and95 to amajor African-based nancial services sectororganisation. For each organisation, the sample wasspread over all the managerial levels and functionsinvolved in the performance evaluation process.3

Survey instruments were sent to the respondentsusing the internal organisations mailing system.However, the responses were sent directly to theresearchers.4 From 296 questionnaires distributed,174 were returned (55 from the UK-based nancial

service sector, 52 from the manufacturing organ-isation, and 67 from the African-based nancialservice sector) yielding a total response rate of 59per cent. Careful examination of responses revealedthat 9 responses were not usable, yielding a total of165 usable responses (56%).Demographic analysis of respondents reveals

that the average number of employees respondentsdirectly manage is 7 (range 1 to 60), they have beenworking in their organisation on average for 12.5years, and been supervised by their current superiorfor 2.9 years. The management functions repre-sented are spread broadly equally between sales andmarketing, operations, accounting and nance, andother. Most respondents are at middle and lowermanagement levels.In addition to the survey, our study undertook

interviews with 24 managers involved in the surveywho were willing to engage in follow-up discus-sion. This provided opportunity to assess thereliability of survey responses and to explore ingreater depth the importance and impact of thevariables under consideration.

3.2. InstrumentsThe survey instruments used in this study, drawnfrom the established literature, are similar to thoseof Lau et al. (2008) with the exception of jobsatisfaction and performance. Fairness of perform-ance evaluation procedures is measured using aninstrument developed by McFarlin and Sweeney(1992), fairness of outcomes is measured using aquestionnaire developed by Price and Mueller(1981), trust in the superior is measured using aninstrument devised by Read (1962), and organisa-tional commitment is captured using the instrumentdeveloped by Porter et al. (1974). For job satisfac-tion, whilst Lau et al. (2008) used a 20-item shortversion of theMinnesota Satisfaction Questionnairedeveloped by Weiss et al. (1967), we used thatdevised by Rusbult and Farrel (1983). To test thevalidity and reliability of the instruments weperformed factor analysis and Cronbach alphatests. The performance variable was measuredusing a single item of performance adopted fromMahoney et al. (1963, 1965) by asking respondentsto rate their performance using a seven-point Likert-type scale, anchored 1 (very low) and 7 (very high),on the question: How would you rate your overallperformance? This single item is also used by, forexample, Brownell (1982), Brownell and Hirst


3 The following sample selection criteria were employed: (1)respondents have managerial responsibility; (2) were evaluatedin the last performance evaluation process; and (3) havereceived performance feedback.

4 However, since we rely on the contacting managers todistribute the questionnaire, the results should be interpretedcautiously.

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(1986), Dunk (1989), Brownell and Dunk (1991),Otley and Pollanen (2000), Chong and Chong(2002), and Chong and Eggleton (2007).Conrmatory factor analysis revealed that all

items loaded above the 0.5 benchmark on theirrespective constructs with Eigen values greaterthan 1. The results support the construct validity ofthe instruments used in this study. The internalconsistency of the items is ascertained usingCronbach alpha tests. Table 1 provides alphacomparison between Lau et al.s (2008) and ourstudy and shows that in all cases the alphas arehigher for the present study.

4. Analysis, results and discussionPrior to the main analysis we performed variouspreliminary analyses. First, a correlation analysis ofthe respondents demographic variables with thedependent variables studied was performed to testfor potential spurious effects. No signicant asso-ciations were observed.Second, to see whether there are any differences

among sub-samples we performed ANOVA testsfor the three companies participating in the survey.While minor differences are observed for somevariables, post hoc analysis using the Bonferronitest reveals no signicant difference for trust. Inaddition, there is no signicant difference fororganisational commitment between the two nan-cial institutions. We therefore categorised the sam-ple into the two industry groups and conductedt-tests. This revealed that the nancial sectorconsistently achieved higher mean scores for vari-ables. Therefore, in running partial least squares(PLS) we added a dummy variable to control theeffect of industry.Table 2 provides the zero order correlations

among variables examined in this study. Overall,the correlation results are consistent with Lau et al.s(2008) ndings, but are stronger in all except oneassociation. We too nd a strong positive correl-

ation between the fairness of performance evalu-ation procedures and job satisfaction (p

(Chenhall, 2005). Whilst the measurement andstructural models can be evaluated together, theyshould be interpreted separately (Hulland, 1999).Following Hartmann (2005), in this paper PLS isused to estimate the structural model as thisassessment of measurement has been widelyvalidated by previous studies (e.g. Lau et al.,2008) and has been assessed separately in thispaper (see Section 3.2). More importantly, asargued by Barclay et al. (1995: 287), this approachguarantees that the measurement and meaning ofconstructs is constant across the analysis (citedfrom Hartmann, 2005: 254).The objective of the structural model using a

PLS approach is to maximise the varianceexplained by variables in the model using R-Square as the goodness-of-t measure (Chin andNewsted, 1999). The parameter estimation proced-ure associated with covariance-based structuralequation modeling is not appropriate (Chin andNewsted, 1999; Hulland, 1999). Rather, a boot-strapping resampling procedure is used to estimatet-statistics for the PLS structural path coefcient.Following standard practice in accounting studieswhich use PLS (e.g. Chenhall, 2005; Cheng et al.,2007) this study uses a large bootstrap sample of500. This gure is chosen so that the dataapproximates normal distribution and leads tobetter estimates of test statistics as PLS does notrequire normal distribution (Chin, 1998; Gefen etal., 2000).Since our rst objective is to examine the external

validity of Lau et al.s (2008) study, we ran PLS

using the same model as in their paper.6 Figure 2presents our results together with that of Lau et al.(in brackets). Notwithstanding the strong zero-ordercorrelation coefcient observed in Table 2, we ndin the structural model that the direct effect offairness of performance evaluation procedures onjob satisfaction (path FPJS) is not signicant. Thisis consistent with Lau et al.s (2008) ndings.However, while they found the path from trust tojob satisfaction and the path from fairness ofoutcomes to job satisfaction to be signicant, wend these paths are not signicant. Moreover,whilst they did not nd a signicant path from trustto organisational commitment, we nd that it issignicant. Our results show that organisationalcommitment is the salient mediating (intervening)variable. It mediates the relationship betweenfairness of performance evaluation procedures andjob satisfaction as well as the relationship betweentrust and job satisfaction.Having compared our study with that of Lau et al.

(2008), we conclude that while both the outcome-based and non-outcome-based effects of proceduralfairness are applicable to their sample, in our sampleonly the non-outcome-based effects are able toexplain how fairness of performance evaluationprocedures affects job satisfaction. The main path isthat fairness of procedures directly affects organ-isational commitment and this then affects jobsatisfaction (Path FPOCJS); a secondary path is


Table 2The zero order correlation among variables

Relations Lau et al. This study

Fairness of proceduresFairness of outcomes 0.418*** 0.716***Fairness of proceduresTrust 0.259*** 0.441***Fairness of proceduresOrganisational commitment 0.407*** 0.485***Fairness of proceduresJob satisfaction 0.377*** 0.482***Fairness of outcomesTrust 0.107 0.391***Fairness of outcomesOrganisational commitment 0.257*** 0.525***Fairness of outcomesJob satisfaction 0.313*** 0.512***TrustOrganisational commitment 0.236** 0.425***TrustJob satisfaction 0.533*** 0.434***Organisational commitmentJob satisfaction 0.543** 0.795***Fairness of proceduresPerformance N/A 0.003Fairness of outcomesPerformance N/A 0.028TrustPerformance N/A 0.033Organisational commitmentPerformance N/A 0.256**

***p< 0.01 (two-tailed)** p< 0.05 (two-tailed)

6 In our paper, based on the results of preliminary analysis, weadd the industry sector to the model.

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that fairness of procedures affects job satisfactionvia trust, where trust affects organisational commit-ment, which in turn affects job satisfaction (PathFPTrustOCJS). Both studies, however, agreethat the effects of fairness of performance evalu-ation on job satisfaction are indirect.Based on these results, hypotheses H1a, H2a,

H3a, H3b, and H4 are supported. However, H1band H2b are not supported. With regard to theindirect effects of fairness of procedures on jobsatisfaction, hypothesis H3c (Fairness of perform-ance evaluation procedures has an indirect effecton job satisfaction through organisational com-mitment) is supported. However, Figure 2 showsthat H1c (Fairness of performance evaluationprocedures has an indirect effect on job satisfac-tion via fairness of outcomes) and H2c (Fairnessof performance evaluation procedures has anindirect effect on job satisfaction via trust insuperior) cannot be supported. We nd thatindustry does not signicantly affect job satisfac-tion.

As discussed above, while Lau et al. (2008) nd aweak path from distributive fairness to job satisfac-tion in their structural model (r=0.139; p

organisational commitment as depicted in Figure 3.The results show that distributive fairness has ahighly signicant indirect effect on job satisfactionvia organisational commitment. Using our newmodel, the composition of direct and indirect effectsare presented in Table 3, Panel A which arecalculated based on the path coefcients inFigure 3. These show that the effect of fairness ofprocedures on job satisfaction is primarily indirect(0.367) rather than direct (0.041).To examine whether trust and organisational

commitment mitigate the negative effects on jobsatisfaction of low procedural fairness, we categor-ised these variables into high and low groups. Asexpected, in the high procedural fairness group, jobsatisfaction is signicantly higher when either trustor organisational commitment is high. However, thesame positive effect on job satisfaction occurs whenprocedural fairness is low but trust or organisationalcommitment is high. These ndings suggest that

while a high-high combination is the most desiredcombination, job satisfaction can be increased evenwhen the performance evaluation is perceived asunfair if there is a strong subordinate-superior trustrelationship.Our nal objective is to ascertain whether

procedural fairness affects performance andwhether it does so in the same manner as for jobsatisfaction. We therefore re-ran PLS, replacing jobsatisfaction with performance as the outcomevariable. The results, presented in Figure 4, showthat the way fairness of performance evaluationprocedures affects performance is quite similar tothat for job satisfaction. First, there is no signicantdirect effect of fairness of performance evaluationprocedures on performance (path FPPerformance).Second, although there is a signicant path of 0.725(p

outcomes to performance (path FOPerformance).Consequently, hypothesis H5b, which states fair-ness of performance evaluation procedures has anindirect effect on performance through fairness ofoutcomes (path FPFOPerformance), cannot besupported. Third, while the path from fairness ofperformance evaluation procedures to trust (pathFPTrust) is signicant (p

Finally, we examine whether the results of thePLS analysis using aggregated data hold at theindividual company level. Table 4 shows that,consistent with the results based on aggregated data,fairness of procedures is positively and signicantlyassociated with fairness of outcomes and trust in thejob satisfaction model. Similarly, fairness of pro-cedures is signicantly associated with organisa-tional commitment, except for the UK-basednancial service company. As in the aggregateddata, we do not nd direct signicant association(p

(2008) ndings provide support for both outcome-based and non-outcome-based effects, our results,using their model, are only able to support the non-outcome-based effects with organisational commit-ment as the salient mediating variable.We further develop the model, drawing on the

more recent literature on organisational justice, toinclude the indirect effects of fairness of outcomesvia organisational commitment. This considerablyalters the results, revealing signicant indirecteffects for distributive fairness. In other words,based on Lau et al.s (2008) model we nd supportfor non-outcome-based effects but not for theoutcome-based effects. However, using our modelwhich incorporates the indirect effect of fairness ofoutcomes via organisational commitment, we ndsupport for the outcome-based effects. We alsoobserve that even where procedural fairness withinperformance evaluation procedures are low, theoutcome can be improved by developing strongerlevels of trust between subordinate and superior.Replacing job satisfaction with manager perform-ance, the revised model suggests that the manner inwhich fairness of performance evaluation proced-ures affects performance is similar to that of jobsatisfaction.Interviews were conducted with 24 managers to

explore in greater depth the research aims and togauge the reliability of survey responses. The

interview ndings broadly support the surveyresults. Procedural fairness is an important deter-minant of job satisfaction, typied by the responseof one manager:

. . . for me job satisfaction is mainly based on thelevel of reward I get and fair treatment.

Procedural fairness is also an important deter-minant of organisational commitment. This isillustrated by comments of two managers:

If I am treated fairly . . . and rewarded then I willbe committed to the organisation.

My commitment to this organisation has cer-tainly improved as things have changed for thebetter over 12 months through better communi-cation via newsletter, the intranet, and ExCoroadshows . . . I can see the organisation isattempting to get the employees involved in thebusiness.

The latter comment points to improving trans-parency through communication and involvement(participation) with superiors, both of which areimportant components of fairness.An example of the importance of trust and its

impact in building organisational commitment isevidenced by the following response:

I and my supervisor have mutual understanding


Table 4Job satisfaction model for the aggregate and individual companies

Path from To Aggregate UK- ownednancialservicescompany

Swiss-ownedmanufacturingcompany

African-ownednancialservicescompany

Fairness ofprocedures

Fairness ofoutcomes

0.725*** 0.673*** 0.604*** 0.714***

Trust 0.461*** 0.474*** 0.489*** 0.407***Organisationalcommitment

0.201* 0.021 0.368*** 0.253*

Job satisfaction 0.041 0.027 0.123 0.251*Fairness ofoutcome

Organisationalcommitment

0.300*** 0.391*** 0.289* 0.038

Job satisfaction 0.078 0.222* 0.059 0.104Trust Organisational

commitment0.226** 0.557*** 0.139 0.088

Job satisfaction 0.085 0.085 0.167 0.062Organisationalcommitment

Job satisfaction 0.701*** 0.633*** 0.696*** 0.761***

***p< 0.01** p< 0.05* p< 0.10


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and trust each other . . . he is very trustworthyand open . . . this (situation) reduces tension andincreases my commitment.

A study such as this will have certain limitations.For example, the survey method employed is basedon respondent perceptions which may give rise tobias due to the lack of objective measures.While theresearch design sought to mitigate this potential biasby: (1) including interviews with respondents wheresurvey responses were further discussed; and (2)drawing the sample from a limited number oforganisations, thereby permitting greater control ofthe survey process and understanding of the organ-isational contexts, the possibility of some respond-ent bias remains. Future study could usefullyexplore the same issue using more objectivemeasures, particularly to measure manager per-formance, or manipulate variables using experi-mental designs. An attribution theory approachcould be employed. This theory argues that indi-viduals tend to attribute their success to internalfactors, such as skill and ability, and their failure toexternal factors, such as task difculty and otherenvironmental and situational factors (Weiner,1985, 1986). This theory has been used recentlyby Nouri and Kyj (2008) to frame other manage-ment accounting issues.Finally, this paper has examined the reactive

dimension of fairness (Greenberg, 1987; Colquittet al., 2001). Future research could also investigatethe proactive dimension of procedural fairness byinvestigating important antecedents of fairness ofperformance evaluation procedure judgments. Twosuch variables for consideration are goal settingparticipation and goal clarity. The proposition thatgoal setting participation is an antecedent offairness of performance evaluation draws on theliterature on procedural justice which has consist-ently found that disputants perceive the procedureas fair if they have process control (i.e. sufcientopportunity to present their case), often referred toas voice (Thibaut and Walker, 1975; Folger,1977; Lind and Tyler, 1988). Goal clarity orspecicity draws on the well-established literatureon goal theory. Locke and Latham (1990; 2002)observe that specic, challenging goals consist-ently led to higher performance than do your bestgoals. Goal clarity is also consistent with proced-ural justice rules outlined by Leventhal (1980) andLeventhal et al. (1980). Hence, future studies couldexamine whether participation and clarity in per-formance goal setting are important determinantsof procedural fairness for performance evaluationsystems.

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