Table of Contents

1.0 Introduction ...........................................................................................................................2

2.0 Literature Review..................................................................................................................5

2.1 Theoretical background of wage inequality5

2.2 Factors that affect the direction of the relationship between wage inequality and firm

performance, most notably ownership5

2.3 How ones place in wage distribution is associated with choice of effort..6

2.4 The Importance of Pay Fairness to Employees and Organizations7

2.5 Current Perceptions of Pay Fairness...8

2.6 Gender Compensation Discrimination..10

2.7 Distributive Justice11

2.8 The mediating effect of organizational justice in determining the relationship between

performances based pay and employees turnover intention13

2.9 Determinants of the (Internal) Wage Distribution in Non-Profit Organizations..14

3.0 Discussion .......................................................................................................................... 16

3.1 Minimum Wage Policy in Malaysia: - Consequences and Readiness of SMEs to

accept it.16

3.2 Gender Wage Differentials and Discrimination in Malaysian Labour Market.19

4.0 Conclusion ......................................................................................................................... 22

5.0 References .......................................................................................................................... 23

6.0 Appendices..25

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1.0 Introduction

Wage is a monetary benefit that the employee get as an exchange for work done by them. This
benefit paid by the employer at a fixed amount for each completed task or service. It can be paid at hourly,
daily, weekly or monthly rate for each task completed by the employee. Wage is regularly and formally
paid in full amount to the employee. Generally wages can be classified into three categories that is living
wages, minimum wages and fair wages.

Living wages have different definition for different country because it is a minimum amount that
enables employees to have a conducive living standard. This living standard are including food, housing
and expenditures depend on the living cost in that specific country. On the other hand, minimum wage is
the lowest amount stated by law that an employer should pay their employees under their contract. It
generally project the starting wage for the least-skilled employees. The determination of the minimum wage
will change over time vary with the economic conditions, transportation cost and size of an industry in the
country. Minimum wages were first introduced in 1918 in Canada to protect female workers in certain jobs.
In Malaysia, minimum wage was initially introduced in 2013. The policy was meant to make sure the
workers can get their basic needs and create adequate environment for companies to move-up their value
chain by improving the productivity of their employees.

The Fair Wage Network defined fair wages as a wage level and wage-fixing mechanisms that
provide a living wage floor for workers, while complying with national wage regulation, such as minimum
wages to ensure proper wage adjustment and lead to balanced wage developments in the company with
regard to wage disparity, skills, individual and collective performance and adequate internal communication
on wage issues. Fair wage may use living wage as a basic but there is some additional factors such as
inflation, overtime and profit sharing. The rate is variable to the occupations. Fair wage lies in between
living wage and minimum wage. The lower limit of the fair wages is minimum wage and the upper limit is
the ability of industry to pay the wage compared to the average payment of similar job that required similar
ability. The amount paid for should be according to the policies. These policies often tied to union wage
rates. This ensures that employer will give them a fair amount instead of taking advantage of them by
cutting down wages and benefit. The City of Toronto introduced the first fair wage policy in 1893, before
minimum wages existed. Since then the British Columbia, Ontario, and other country have adopted fair
wage policies.

In an organization, the employer need a powerful individual that have the skill and talent to ensure
that the business can achieve their goals successfully. The way to attract this individual is by providing
them a fair wage structure. Studies show that a fair wage structure is one of the best ways to make employee

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motivated and being loyal to the business. The structure should provide an equal pay for men and women
to avoid the situation where women were being paid less than men, even though they are doing the same
job. Paying women less than men are clearly unfair situation not only in the organization, but also affect
the society. This is because lower earnings will make it harder for women to take care of their families
especially for the single mother. Some of the family also dependent on the womens salaries as a financial
support since the living cost nowadays keeps increasing. In some cases, women with more education pay
less compare to the men. This thing should not be happened since investing in higher education might take
a large amount of money. This gender pay gap is one of the big discrimination issues in the business ethics.

Business with good management practice will have the fair and equal pay development shows the
business ways of working and value of the business itself. It helps to attract the best employee come to the
organizations, staff turnover can be reduced, motivation, commitment and relationship can be increase
where this all can improve the organizations productivity and efficiency so that the stakeholder including
the customer can project a good image of the organization. They feel more confident and trust while doing
transaction with the organization. This is the key part of the organizations corporate social responsibilities.
Failing of being equal in pay can lead to legal claims since this issue have been stated in the act in most
countries in the world. Reputations will be damaged and affected the commercial success. Although
structuring the fair wage that free from sex and race discrimination may be costly and time-consuming, but
the risk of equal pay claim can be minimized and help the society to create a fairer community. An
organization should have an equal pay of the pay structure since it gives a lot of benefit not only to the
organization itself but also the society.

Justice is defined as fair treatment for everyone and due reward in compliance with moral or legal
standards. In the perspective of business, it is meant as the decisive principles used by a person to decide
on the presence of justice in a situation can be based on the rights perceived by the person or the evaluation
of the intention of the person involved in a business. As a result, justice is probably to be based on the moral
rationalities instead of utilitarian rationalities. In other words, justice has to deal with issues of what a person
feels they expects based on their performance in the work environment and rights. For instance, the U.S.
Equal Employment Opportunity Commission is formed to help workers who are uncertain and doubt that
they have been treated unjustly in their workplace.

There are three types of justice and each of them provide a structure to assess the fairness of various
situations. One of them is distributive justice. It depends on the assessment of the results of the business
transaction or relationship. Concerns about distributive justice arises if the workers feel that they are being
paid less than their colleagues for a similar work. Besides that, distributive justice is hard to be cultivated
is one of the party in the business exchange wants to take advantage of it for their self-interest. A boss who

3
pressures his workers to do more task, so that he can take additional time off would be viewed as unjust
since he is taking advantage of his position to redistribute the employees under him. Situations like this can
create imbalance in the practice of distributive justice.

Secondly, procedural justice depends on the procedures and actions that yield the results. Assessment
of performance that are regularly developed and practiced can prompt to issues with procedural justice. For
instance, workers concerns about the pay disparity would relate to their judgment that fairness process in
their workplace was inconsistent. An atmosphere that gives emphasis to procedural justice is expected to
positively impact the workers attitudes and behaviors toward the group cohesiveness. Lastly, interactional
justice depends on the evaluations of the communication process used in the business relationship.
Evaluation of fairness is based on the accuracy of information, truthfulness, respect and courtesy in the
process.

In conclusion, fair wages and justice is important to be practiced in the workplace to ensure the
employees are being treated fairly and they are not being taken advantage of the interest of another party
of organization. It is essential to protect the employees rights in terms of payment of fair wages to make
sure they retain and stay loyal in the same company. If the company does not handle issues or problems
effectively and immediately, there are chances for companies to lose their best employees. Thus, treating
the employees in a right way should be an important concern of the organization because employees are
the asset of the organization.

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2.0 Literature Review

2.1 Theoretical background of wage inequality

There are two theories regarding the effect on wage disparity on the organizations performance.
The first one is tournament theory by Lazear and Rosen (1981) that discusses about internal labour markets
in which people compete for rewards, normally increment in salary or promotions. It is stated that an
increment in wages paid for employees at the same level or different level of hierarchy can encourage them
to put in more effort in regards to get paid more and get promoted. This theory recommends that wage
disparity has a positive relationship with individual and organizational performance. (Hamann & Ren,
2013)

The second theory is fair wage theory which was developed by Akerlof and Yellen (1990). This
theory suggests that employees tend to compare their wages to their colleague to make sure they receive
fair wages and they believe that equal pay distribution is more compressed than differentials in terms of
productivity. Employees who recognize that they are being paid lower than expected has the tendency to
decrease their effort, increased absence, vandalize property, do sabotage, or act brutally(Crosby 1984),
damaging the productivity of workers as a whole. In addition, Levine (1991) included that inequality in
pay reduces both the participation of employees and cohesiveness in the team. These variables predict that
wage disparity and performance are negatively related yet it is crucial to take note that not all workers
perceive fairness in compressed wage distribution nor does the theory indicate the ideal level of pay
compression. (Hamann & Ren, 2013)

2.2 Factors that affect the direction of the relationship between wage inequality and firm
performance, most notably ownership

It was found that pay inequality and performance of organization were positively related in for the
profit organization and performance of the organization are measured through profitability. However, a
study conducted by faculty of university (Pfeffer and Langton 1993) that used non-profit and government
staffs as their respondents found that wage disparity and performance is negatively related. Besides that,
studies of (Bloom1999; Cowherd and Levine 1992; Harder 1992) that utilized the performance measures
that base the quality also found that wage disparity and performance are negatively related. (Hamann &
Ren, 2013)

Measuring the performance of employees on the basis of quality rather than quantifiable one will
most probably give impact on the changes of employees input or effort. Employees also tend to act in a
way that is less noticeable and measurable to avoid from getting caught red handed when they do sabotage

5
their employees due to inequality in wages offered. Therefore, this situation will be worse when it can
decrease the quality of output in long term. It could be because of employees are the one dealing with the
products and performing services and have more control over the output. (Hamann & Ren, 2013)

Despite the quality changes affecting the lower level employees, it is expected that the impact of
pay inequality to be less obvious than changes in quality, quantity or productivity because when quality
changes occur, they are noticeable easily and seldom occur. In contrary, when wages disparity prompts
effort due to competition for rewards, employees are expected to put in more effort that is measurable in
terms of quantity changes. It is believed that when employees work in a team increases the chances for
them to compare themselves with their co-workers and realize the impact of fair wage theory when their
wages offered tend to be different from each other. However, there is a likelihood for the employees to
sabotage each other to get their rewards when they work closely together in a team. (Hamann & Ren, 2013)

On the other hand, Shaw, Gupta, and Delery (2002) proposes that relationship between wage
disparity and performance depends on the interconnection of the job related assignments. Frederickson et
al. (2010) added that job of top management teams are exceptionally interdependent and it could be the
reason why wage disparity and performance are negatively related. Workplace cultures also one of the
reason why pay inequality is perceived to be not fair. Some employees favour more disparity in wages
because they feel that they deserve to be paid higher as they view their commitments and efforts to be worth
in regards to pay. In future research, it had been suggested that employee attitude to be considered in the
determination of wages distribution to figure out how a fair distribution would be like. (Hamann & Ren,
2013)

2.3 How ones place in wage distribution is associated with choice of effort.

For profit organization, employees increase their effort in order to get their pay raised but in some
circumstances, educational barriers to the increment of salary or promotion prohibited this from happening.
On the other hand, profit organization that experience high wages inequality were reducing the pay of low-
skilled workers relative to the market and recruit lower skilled workers who do not supply additional effort.
The organization tend to increase the wages of high skilled labours relative to the market pay and they have
more prominent effect on resident well-being. (Hamann & Ren, 2013)

In contrary, there is no valid relationship between wage disparities and discretionary input or effort
in the non-profit organizations because the workers are more naturally motivated and thus less expected to
think about making comparison of wages among them. (Leete 2000). However, if wage inequality occurs,
it tend to reduce well-being of the residents because if the money offered to be paid for higher-paid
employee had been saved, the money could have been used to improve the social well-being such as

6
providing facilities and food to the residents. Yet, this is not the case in for-profit organizations in light of
the fact that dollars saved would benefit the employers rather than people. (Hamann & Ren, 2013)

Furthermore, employees who are being paid less in respect to their qualifications are more likely
to resist in executing more efforts than those who are paid more in respect to their skills or capabilities. The
relationship between ones place in the wage dispersion and effort was not strong because most of the
workers dont have knowledge about their co-workers pay and they do not change their exertion irrespective
to their wages. Overall, the employees actually had actually guessed or estimated the salaries of their co-
workers and it happened to be not extremely precise. (Hamann & Ren, 2013)

As a conclusion, tournament theory is more dominant than fair-wage theory in profit organisations
and it is vice versa for non-profit organizations. Perhaps, it is due to differences between the goals of the
management or organization and along these lines they select and compensate workers in a different way.
Pay compression is most likely to occur in non-profit organization than profit organization because it is
believed that the extra dollars saved actually. (Hamann & Ren, 2013)

2.4 The Importance of Pay Fairness to Employees and Organizations

According to Rasch & Szypko (2013), wage equality is based on two basic components which are
objective and subjective. Objective component is the something that is measurable for illustration degree
to which pay rate is consistent to the market rate pay. Meanwhile, subjective component is for example and
employees emotional reaction to the inferred value explanation made by pay. The perception of pay
fairness is similarly as essential as the reality of it despite whether perception of employees towards pay
fairness embedded in terms of objective or subjective measures.

Employees always wanted to get back what they want when they realize that they had realized that
their hard work executed actually matches the job they perform and hence pay is an important element for
this evaluation. Wiley (2011) had reported that 25% of employees in the organization perceives that pay
fairness is the most vital thing they want from the organization. The significance of pay fairness to workers
can be seen by its relationship to various imperative work and life results including worker engagement,
turnover expectations, mental and physical well-being and life fulfilment.

Wage equality is not only important element for employees but also for an organizations best
interest. There is a group of research proposing that organizations that are more connected with workforce
beat their peers on a number of organizational metrics. (Salonova, Agut, and Piero 2005; Harter, Schmidt,
and Hayes 2002). Employers also can save money through lessened work force which prompts to enhance
mental and physical well-being that implies less absents from work and better focus on the job performed.

7
(Spector, Dwyer, and Jex 1988; Spector and Jex 1991; Wright and Cropanzano 1998). Turnover
intentions may likewise be decreased, and the cost of supplanting an employee can be avoided by paying
an employee fairly. (Fitz-enz 1997).

Since there are many factors that affect the perceptions of fair pay, it is not surprising to hear that
they is a gap in between the objective of pay fairness and his or her view on whether the pay is reasonable.
In the event that leaders in the organization and remuneration committee can assist in reducing the gap
between employees perceptions of fairness and the truth that compensation has been figured out in a
reasonable, reliable and thorough system, they may positively affect the workers lives not only in work but
also their personal life and help the organization as well. Key drivers of workers trust or belief in the
fairness of her or his compensation is understanding how the pay is figured out, knowing how to maximize
the compensation and also accepting the fact that pay is related to performance. (Rasch & Szypko, 2013).

2.5 Current Perceptions of Pay Fairness

When current perception of pay fairness are investigated, the understanding of differences in engagement
levels between the individuals who trust they are paid reasonably and the one who dont turns out to be
clear.

Employees understanding towards compensation increases with the employees level in the
organization. This is most probably because individuals at top level management are perceived to have
more exposure to how pay mechanism works and motivations driving the pay programs. Exposure via
participation in the development and possibly in the base and variable pay programs provide a degree
Exposure through participation in the development, and potentially in the approval, of base and variable
pay programs provides a degree of visibility. Indeed, even managers who not included in the development
and approval of remuneration would most likely have exposure about it when they join management
training held by human resource department during program roll-out.

The main issue is that most of the employees and even many middle level managers and front-line
employees do not have a clear picture of how their pay is computed or how to boost it. It is only through
the input of knowledge to employees regarding pair fairness, this issue can be resolved and additionally
build engagement levels of employees toward organisation. (Rasch & Szypko, 2013).

8
Helping the Organization Understand How Pay Is Determined

Organization can find ways to help their employees comprehend their compensation. To start with,
employers should understand that employees seek out data about compensation from outer sources for
example, the Internet, friends, co-workers, affinity group publications and government publications. The
employees will most probably use this data to make judgment on the reasonability of their own pay. It is
viewed as employee who had searched this data is trying to be better informed member in the employer-
employee discourse. The employee represents a chance to close the gap exist between the wage equality
and the reality that there are many solid reasons why the pay program is not in line with the sources of
external data. (Rasch & Szypko, 2013).

Instead of being in a protective position, employers must try to help their employees to analyse the
information that the organization uses as a part of setting pay. Employers should take this chance to share
the employers expressed market position, the industry they are in and average pay received by an employee
in the industry and comparing it to market rate pay according to the geographic region. (Rasch & Szypko,
2013).

Besides that, forming a communication program in the organization for wages transparency to
provide managers and human resource executives with knowledge on organizations remuneration policies
and empower them to share the knowledge to lower level employees. Visibility on the compensation
package should uncover the details such as market rates, salary ranges while others only share brief policies.
The right level of transparency actually mirrors the organizations general way of dealing with information
sharing. The information to be shared can be conveyed clearly, often and by means of numerous channels
despite the organization culture is open or conservative.

At last, the discussion on the compensation should not concentrate only on base pay. Numerous
organizations have brought into various pay programs into the compensation mix and need to guarantee
that the workers not only comprehend the natural estimation of variable pay programs, but also their impact
on the market level and overall play blend. Industry, size of organization, level of development, hierarchical
culture and economic conditions can adversely affect the mix compensation of fixed and variable pay,
benefits, allowances and many more. When employees have understanding on the compensation mix via
these programs, they are able to work hard and execute efforts to maximize their pay. (Rasch & Szypko,
2013).

9
Helping the Organization Understand How to Maximize Pay

Even though the base salary can be boosted by a modest degree, variable pay has the most likelihood to be
maximised which comprises short and long term incentives. It is crucial for the managers to comprehend
the variable pay especially the metrics that decide the size and timing disbursement of pay. Employers
should share the examples of performance levels corresponding to the disbursement of pay. If the
organizations remuneration is on the basis of stocks, employers should ensure employees understand how
the stock plan function and should not assume that they would get to know about stock programs by
themselves. (Rasch & Szypko ,2013).

Helping the Organization Understand the Relationship of Pay to Performance

There is always a confusion between the term pay for performance with increase for performance in
most of the organizations. Pay for performance is referred as salary paid that correspond with performance
over an amplified time frame. Employees whose performance are higher will be paid higher while
employees whose performance are lower will be paid lower. In contrast, the increase for performance means
employees with equivalent performance will receive equal increases regardless of what position they are
in. Pay for performance is disbursed with the salary movement over time whereas increase for performance
is concerned just with the measure of increment for the current year. (Rasch & Szypko, 2013).

2.6 Gender Compensation Discrimination

Issue of gender pay gap, where compensation and authority, leadership and managerial positions,
acknowledgment for productivity and privileges are used to differentiate the gender or sexes are not limited
to the corporate world even though they dominate themselves in this environment. The higher educational
institutions are also part of the environment in which discrimination of gender compensation and gender
pay gap exist that creates inequality between men and women.

This issue revolving the gender pay gap has been controversial debates over the centuries, especially in the
20th and 21st century where in this particular period, the role of women has dramatically changed compared
to their predecessors. Gender differences is a very common phenomena, and controversies arising out from
these will lead to issues on treatment, respect, equality, fairness, rights and privileges of persons with regard
to their gender. One example of such issue will be Gender Compensation Gap, where some organizations
tend to compensate female employees less for equal positions of responsibility and contributions to
organizational growth in comparison to their male counterpart. This issue results in a gap between male and
female monetary and other non monetary rewards for work, referred as Gender Compensation Gap.
Gender Compensation Gap can also be called as the Gender Pay Gap in which it describes the differences

10
between mens and womens average salaries. (United States Government Accounting Office & Sherrill,
2009).

The civils rights legislation in 1960s mentioned it is illegal for an employer to pay men and women
different pay bases for the same work or to discriminate against women in job assignment, promotion or
hiring. (Johnson and Solon, 1986). However, the tradition of paying different wages to men and women for
the same jobs is still a big issue to be solved even now. According to Okpara, Squillance and Erondu (2005),
in their study on gender differences and job satisfaction of United States academics, they found from their
survey that there are gender differences in the job satisfaction levels of the university professors. The result
shows that female professors earn less and are less satisfied with their pay in comparison with their male
counterpart. Adding on, the researchers also found out that there are biases against pay increases for
promotions of women since the senior members responsible for the promotions in the university were male.
This eventually results in gender pay gap,

In past studies conducted by (Okpara, Squillance and Erondu (2005), women have not been fully
acknowledged by most institutional leaders as equal partners in management and in delivering of instruction
in higher institutions. According to Anderson (2003), he states in his study that feminism does matter and
privileges need to be given to women, where it will make a difference in the academic community. Women
should be treated equally in terms of salary payment.

2.7 Distributive Justice

Greenberg (1987) initiated perception of fairness in organizations and clarified it by sorting out
workers' perspectives and emotions about their treatment and the treatment of others inside the organization.
In his value hypothesis, Adams (1965) started the possibility that distributive equity is the impression of
whether a specific result, (for example, pay or an advancement choice) is reasonable. Assessments of
fairness depend on social examinations of input-to-output ratios. In organization settings, the information
incorporates skills, qualication, and eort; the out-put incorporates pay, advancement, and different types
of acknowledgment (Fujishiro, 2005). Homans (1961) marked distributive equity as worker impression of
result equality. (Goksoy & Alayoglu, 2013).

Past studies proposed equity is reliably identified with employees work attitudes and actions.
(Greenberg, 1990). At the point when people see results to be reasonable, they encounter fulfilment
(Ordonez, Connolly, and Coughlan, 2000). These workers are then prone to be strong of both the result and
the gatherings included (Barry and Oliver, 1996). In any case, when people see results to damage fairness,
they are probably going to experience outrage (Allred, 1999) and strike back (Folger, 1993). Responses to
saw infringement of reasonableness incorporate dismissing significant oers (Pillutla and Murnighan,

11
1996), expanded truancy (Hulin, 1991), stealing, and vandalism (Skarlicki and Folger, 1997). Employees
attempt to decrease this injustice by changing info, (for example, working less) or yield, (for example,
taking from the organization). (Goksoy & Alayoglu, 2013).

There are theories to explain the relationship between the distributive justice and ethical decision
making. Firstly, equity theory proposes that a trade has taken place where one person has a view that he or
she has gained benefit to an extent that another party would feel annoyed, tension and offended. These
negative feelings can induce a person to hurt another person or organization in total.(Skarlicki & Folger,
1997). The employees would possibly be encouraged to make a move to reduce the pressure. This theory
proposes people will try to adjust their feelings of imbalance by taking part in practices or discernments to
change their own particular or others inputs or outputs. (Adams, 1965). At the point when dishonest
conduct is seen to be embraced in response to unfair actions with respect to another, it could be seen as a
method for rectifying the inequity made. (Goksoy & Alayoglu, 2013).

Past studies proposed value is dependably related to agent work perspectives and practices
(Greenberg, 1990). When individuals get results that are reasonable, they experience satisfaction (Ordonez,
Connolly, and Coughlan, 2000). These labourers are then inclined to be solid of both the outcome and the
social affairs included (Barry and Oliver, 1996). Regardless, when individuals get results to harm
tolerability, they are most likely going to experience shock (Allred, 1999) and strike back (Folger, 1993).
Reactions to saw encroachment of sensibility link rejecting critical oers (Pillutla and Murnighan, 1996),
extended truancy (Hulin, 1991), taking, and vandalism (Skarlicki and Folger, 1997). Agents try to reduce
injustice by evolving data, (for instance, working less) or yield, (for instance, taking from the association).
(Goksoy & Alayoglu, 2013).

The second method of reasoning is theories of revenge. Schweitzer and Gibson (2008)
constructed this hypothesis in view of Lewicki's cost benet model (1983.) In this model, an individual
considers compensation and penalties before taking part in untrustworthy conduct. Taking part in
untrustworthy conduct, notwithstanding being viewed as settling an imbalance, might be viewed as an
approach to punish the act of a partner. In addition, employees who get treated unfairly most likely try to
rationalize their unethical acts. They can bring about lower psychological expenses for taking part in
unethical conduct. Subsequently, we anticipate that those workers will probably participate in unethical
decision making. (Goksoy & Alayoglu, 2013).

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Distributive justice affecting work attitudes

Research by (Welbourne,1995), a body of literature in organizational behaviour suggests that the

employees reaction to a variety of aspects of organizational life, in particular an organization reward
system is dependent on the perceived fairness of outcomes. Past studies on the personal outcomes model
stated that employees focus on distributive fairness to maximize their personal outcomes, because they
believe that fair distributions will result in favourable distributions (Clay-Warner et al, 2005). Through
this model, distributive justice would be the key antecedent in predicting work attitudes such as job
satisfaction (McFarlin and Sweeney, 1992). In studies of bank employees (McFarlin and Sweeney 1992)
and financial services employees (Martin and Bennett 1996), this model has found experimental support,
where distributive justice were found to be the dominant predictor of job satisfaction.

According to (Deutsch ,1985) argument, it is employees right to be treated fairly and just work
place, and this would directly apply towards an organizations pay system. Lambert et al. (2005) stated that
organizations would obviously have problems motivating employees, without organizational justice. Not
only that, Greenberg (1990b) contended that organizational justice is a fundamental requirement for
organizations to function effectively and for the personal satisfaction of the individuals employed.
Distributive justice directly influences the workplace attitudes and behaviours (Clay-Warner, Reynolds and
Roman 2005). Specifically, distributive justice has strong influence on workers satisfaction with their pay
and on turnover intentions (Alexander and Ruderman 1987; Konovsky, Folger and Cropanzano 1987).

Overall, distributive justice studies suggest that due to low distributive justice, there are higher
possibilities for employees to quit their job in order to end the inequity (Hom, Griffeth and Sellaro 1984;
Hendrix, Robbins, Miller and Summers 1998; Fields, Pang and Chiu 2000). In the study conducted by
(Ambrose and Cropanzano,2003), they found that distributive justice perceptions could affect employees
future attitudes towards leaving an organization. As a conclusion, (Colquitt,2001) determined that
organizational justice is a consistently strong indicator of employees job satisfaction and turnover
intentions. Higher level of distributive justice leads to increase in job satisfaction and lower turnover
intentions.

2.8 The mediating effect of organizational justice in determining the relationship between
performances based pay and employees turnover intention

Relationship between Pay Procedure, Procedural Justice and Employees Turnover Intention :

In a study conducted, it was declared that both distributive and procedural justice is negatively related
turnover intentions, while procedural justice was positively related with job satisfaction. (Lambert,2010).

13
The study also found that association of distributive justice was less stronger than association for procedural
justice. In addition, employees perceptions of procedural justice are directly related to organizational
commitment but negatively related to turnover intention (Ponnu & Chuah, 2010). This indicates that if
employees perceived that the pay procedure viewed as fair and just, the intention to leave the organization
would be lower. Lee (2000), in his research stated that people are most likely to accept the decisions that
resulted from fair procedures instead of decisions that resulted from unfair procedures. People use the
procedural fairness as the basis to create stronger relationships with their employers and to increase their
loyalty and commitment towards the organization (Tyler & Lind, 1992). (Lind and Tyler,1988) in their
study mentioned that distributive justice is a significant predictor of specific behaviours about specific
outcomes in question, whereas procedural justice has strong influences on behaviour about institutions or
authorities such as trust in management or organizational commitment. Employees usually have strong
concern on how the pay is distributed and judge whether the procedure is fair or unfair.

2.9 Determinants of the (Internal) Wage Distribution in Non-Profit Organizations

There is very less research conducted on wage determination and the wage structure in non-profit
organizations (NPOs). Fair wage hypothesis states that employees are more motivated and productive
when the wage dispersion is small and employees recognize the wages that are paid in the organization as
fair (Akerlof and Yellen 1990; Levine 1991; Frank 1984). In a contrary statement of reasoning, the
tournament theory states that a higher wage dispersion will result in more competition among employees
and thus will have more productive employees. (Lazear and Rosen, 1981). Fair wage hypothesis and
tournament theory studies were conducted among university faculty (Pfeffer andLangton, 1993), baseball
teams (Depken 2000) and soccer players (Torgler, Schmidt and Frey, 2006).

From all these studies, it can be concluded that more equal wage dispersion results in higher
productivity, and produce better team performance and create job satisfaction. So far, there is very less
research conducted on the wage dispersion in NPOs. In comparison of wage dispersion in non-profits and
for profits, Leete (2000) assumes that the fair-wage hypothesis prevails in non-profits, without explicitly
stating or testing it. Non-profit sector was found to have lower wage dispersion as compared to the for-
profit sector. Another part of research compares the level of wage among managers in the non-profit and
the for profit sectors (Roomkin and Weisbrod 1999; Frumkin and Keating 2001; Hallock 2002; Oster 1998,
Ballou and Weisbrod 2003). The research states that managerial pay is often lower and less performance
related in the non profit sector. (Ballou and Weisbrod, 2003, Frumkin and Keating 2001, Roomkin and
Weisbrod 1999).

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 Therefore, the existing study points out that non profit sector has lower wage dispersion as
compared for- profit sector. These wage paying norm might be due to the reason that it is important to
maintain equal wages at NPOs to sustain the employees intrinsic motivation and work productivity (Benz
2005; Ren 2010). This means in non profit organizations, fair wage hypothesis, which states that more
equal wages result to a higher productivity among employees, is more applicable than the tournament
theory. One reason for lower wage dispersion in non- profit sector might be because of lower pay levels for
managers in NPOs. However, it is unsure if this is applicable throughout all the NPOs or there are
differentiating characteristics that influences the wage dispersion across the organizations.

Volunteers, Donations and Public Subsidies and Their Possible Influence on the wage Dispersion in
Npos

Volunteers often work in NPOs together with paid employees. Looking at economic perspective, volunteers
can be recognized as substitutes or complements to paid labor (Emanuele 1996). Where volunteers
complements paid workers completely, the whole wage segments may drop out of the wage dispersion. If
the volunteers perform tasks at the upper end, (managerial tasks) or at the lower end, the wage dispersion
will be smaller compared to organizations with no volunteers. As for the remaining wage segments, wages
could be less evenly distributed. In the case of lower end or upper end substitution, volunteers indicate
a flat hierarchy in the organization and will probably smooth the wage distribution. Volunteers utilization
could be indicative of an organizations mission. Donations and public subsidies could significantly affect
the wage dispersion which allows wage variation within an organization.

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3.0 Discussion

3.1 Minimum Wage Policy in Malaysia: - Consequences and Readiness of SMEs to accept it

In the new era of globalization, it has become a prevalent practice to use minimum wages to
determine fair wages and now it is now a growing concern for developing countries like Malaysia too. In
January 2013, the minimum wage policy was first introduced in Malaysia called as Minimum Wage Order
2012. The target of initial implementation of minimum wage by government was for organizations with
at least 5 labours and for organization that offer professional activities which is categorized under the
Malaysian Standard Classification of Occupation. Presently, it is applicable for all companies to practice
minimum wage policy. Malaysian government has set a scale for minimum wage for workers to be paid at
RM900 in West Malaysia and RM800 in East Malaysia and this policy is not applicable for employees
under probation. Workers under probation are permitted to be paid 30% lower than the minimum wage set.
If let say the minimum wage is RM900, the employer is allowed to pay RM630 which is less 30% of
minimum wage and not lesser than that to the employees under probation.

This minimum wage policy has set off a colossal argument among Small Medium Enterprises
(SMEs) particularly those enterprises that recruit a massive number of foreign workers. Employers had
placed their strong arguments on the formulation policy via SMEs association. One of the main arguments
is on the increment of labor costs. The cost of hiring foreign labours differs between industries and
employers argue that they had to bear additional costs other than payment of minimum salary. The table 1
below shows other costs that need to bear by the employer:-

Table 1
From the table 1, it can be seen that employers had to pay annual levy or tax and it varies for
different sectors and other costs such as insurance, accommodation and transport had to be borne by
employers in the case of hiring foreign workers. All employers, including foreign labours will receive
benefits from this implementation of minimum wage such as increase in pay if overtime whereas a total,

16
they would receive an average of RM1, 200 to RM1, 500 per month. However, the annual levy is paid by
the employer for certain sectors burden them more. Thus, the government had considered the employers
concerns and made some amendments in the policy. Among the adjustments are to impose the annual levy
to be paid by workers rather than by employers. Studies by Small & Medium Institute of Employers (SMI)
in 2012, stated that there is a possibility of 80% of SMEs to cease operation if this minimum wage policy
is to be executed nationwide. Another key argument is the SMEs are less prepared towards facing this
because their production rely heavily on the labours. SMEs hire around 59% of the workforce with the
salary approximately RM650, margins on average are around 3% to 5%. It is certain that the readiness of
SMEs to confront the consequences of the minimum wage policy is less compared to bigger firms.

Similarly, the employers of Thailand also fear the same thing would occur with them. Due to
increment of the costs of hiring labours and other additional costs, it can impact the SMEs that are presently
struggling and there are high chances for them to lay off their workers and some to be out of business as
well. Consequently, the demand for unskilled labours will be reduced because the company will be more
interested to pay higher than minimum wage salary to one or two workers who can have skills to cut costs
rather than recruiting many unskilled workers and cause cost overruns in productivity. Hence, the
vulnerability of workers with less skills or no skills will keep on increasing and unemployment rate rises.
This can lead to poverty level to get worse. The major impact occur for SMEs, particularly labour intensive
sectors such as agriculture, manufacturing and tourism. Indeed, organizations also bear huge loss due to the
policy of minimum wage.

In contrast, the policy also has some positive consequences too. For instance, the productivity of
an organization had been increased. As indicated by Ministry of Labour, the labour productivity had
increased by 12% ever since the implementation in comparison with an average of 2% increment without
the policy. Additionally, the primary purpose of implementation of minimum wage is to overcome poverty,
boost productivity and increase the quality of goods and services. According to statistical data, poverty in
Malaysia is only 4.56% of the total population is being paid a salary at the lowest 20%, which means
95.44% of the Malaysian population is free from the category of bottom low wages group.

There are several strategies to overcome the impacts caused by the policy. Firstly, increase the
skills of the workers via proper training and effective quality control to assess them. It is certain that the
training of employees will incur more costs to be borne by the employers, hence, government should
provide facilities or assistance to reduce the burden of the employers. It serves as a social justice if the
training is given to unskilled workers because they can equally contribute to the production and profitability
of the company with proper training and organizations should have corporate social responsibility as well
by taking care of the employees. Without employees, an organization is unable to achieve what they had

17
set. Lower level of poverty also can reduce the crime rates among the unemployed workers mostly youth.
In addition, minimum wage will be a useful tool or medium to change the SMEs into blue ocean strategies
in the long term, concentrating on the quality of the products via skilled and partially skilled labours.

Apart from that, organization also should consider implementing intrinsic rewards to employees,
which can give them job satisfaction, boost their self-esteem and give more authority to them in the
workplace. One of the underlying factors for successful manufacturing system in Japan is by utilizing
quality circle where employees are required to form a group and free to brainstorm and discuss any
problems or issues with the company and suggest solutions. By letting employees participate, they feel
valued and encourage to put more effort in benefit to the organization.

In conclusion, it is evident that SMEs have less readiness towards facing the consequences of
implementation of minimum wage policy compared to bigger firms. However, it should be implemented
for the benefit of SMEs and the society in the long term because SMEs are foundation and pillar of growth
in economy in driving growth of industry. With the advancement in technology, SMEs are being placed
greater pressure to acknowledge the dreams of Malaysia to become a developed nation and achieve the
vision 2020.

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3.2 Gender Wage Differentials and Discrimination in Malaysian Labour Market

Discussing about wage differences in Malaysia, it can be analyzed from several aspects,
such as by occupation, skills, industry, region and genders. On the primary basis, wage differentials
can be clearly seen through ones occupation. There is variation in each occupation such as some
of it does not requires unusual physical activity and long hours work, whereas others requires long
hours work and heavy labours. Further, a persons education also contributes to wages
determination. Some requires long durations of education and training while others requires much
lower qualification. Thus, occupations that needs unpleasant or long period of educations would
be paid with higher wages. Adding on, there is a positive relationship between the ability of human
capital in generating earnings and productivity level which eventually leads to wage differentials.
Wages that are determined according to the level of work, educations and skills regardless of
gender are often perceived as fair.

However, controversies arouse when talking about determination of wages based on

genders. In Malaysia, the participation rate of females labour force is very much lower than males,
even though they have equal levels of education. It has become a norm and can be also commonly
observed that employers always prefer men more than women because women are said to have
less skill and immobile compared to men. For those women who successfully managed to enter
the labour market, they usually receive lower wages than their male counterparts. This is due to
the discrimination practices in Malaysia. Often, women are not given opportunities to enter into
sector which are perceived to be dominated by men.

A real life example will be the airline industry. Only in the Year 2009, the first Malaysian
woman received an airline transport pilot license and the record was broken. AirAsia's Captain
Norashikin Onn was honored by the government. There are many other industries other than
airlines industry where women are discriminated such as technology, automotive, electrical,
transportation industries and many more. It is an undeniable fact that discrimination against
women happens in each countrys workplace. Often, there are discrimination practices in hiring
and promoting and occupational gender segregation which directly leads to a huge wage
differentials.

Even until this date, the issue on gender pay gap and gender discrimination has not been
resolving. According to the recent statistics based on certain industries, men are still earning more

19
than women in Malaysia for doing same jobs, except in the construction industry. The tables below
show the data of the average monthly salaries according to occupations and industries respectively
in the Year 2013.

Table 1
Average monthly salaries (occupation) in 2013
Industry Male (RM) Female (RM) Gender Wage Gap
(%)
Skilled workers 1,481 893 39.7
Services and sales 1,746 1,136 34.9
Elementary (Basic) 1,133 806 28.9
Professionals 4,728 3,641 23
Plant and factory 1,457 1,139 21.8
workers
Managers 5,856 4,763 18.7
Source : Salary and Wages Survey Report 2013, National Statistics Department

Based on the table above, there are many sector that applies the norm of paying men more than
women. As illustrated above, the largest gender wage gap can be seen in the skilled workers occupation
category where males are getting paid more than female with a 39.7% salary difference (RM588).The
second highest gender wage gap can be seen in the services and sales sector where the differences of the
wage differentials is RM 610 and 34.9 % in percentage. Elementary or basic workers followe with a 28.9%
difference (RM327) and those in professionals occupations at 23% (1087). Plant and factory male and
female workers had a pay gap of RM 318 at 21.8%. The lowest gender wage gap is found in managers
compared to other occupations from the table above and the percentage is at 18.7%.

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 Table 2
Average monthly salaries (industries) 2013
Industry Male (RM) Female(RM) Gender Wage Gap
(%)
Real estate 3,923 2,493 36.5
Hospitality 1,510 1,056 30.1
Manufacturing 1,959 1,464 25.3
Professional and technical 3,408 2,619 23.2
Administrative 1,451 1,1,24 22.5
Construction 1,708 1,932 -13.1
Source : Salary and Wages Survey Report 2013, National Statistics Department

The highest gender wage gap between men and women is in the real estate industry. The difference
is RM 1,430 at 36.5% followed by hospitality sector where the difference is RM454 at 30.1%.
Manufacturing industry and professional and technical industry on the other side has a gender wage gap of
RM 495 (25.3%) and RM 789 (23.2%) respectively. In the administrative industry, the difference is about
RM327 (22.5%). However, in contrary, the only sector that has women participation rate higher compared
to men in Year 2013 is the construction sector. As an evident, the source from National Statistics
Department shows that the gender wage gap in that particular sector is RM (224) at -13.1%.

Even though women are given opportunities the labour market in Malaysia, however men
domination is high in most of the occupations and sector. This is because of the discrimination practice that
has become a normal tradition here. Malaysia, is not the only country facing this issue but it is a worldwide
problem that has prolonged all this years. Government has taken many actions to reduce this issue such as
enacting a new acts and declaring the minimum wage policy, hence this is an issue that cannot be solved
easily. Gender discrimination should be eliminated as women are equally potentially. Wages should not be
paid according to genders. Instead, there should be equal pay for equal value. Employees who shows equal
value of skills, performance and responsibility should be given equal wages rate regardless of gender.
Gender discrimination should not be allowed in any country.

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4.0 Conclusion

As conclusion, fair wages and justice are two important aspect in any workplace and it is applicable
throughout the world. Fair wages and justice is important to be practiced in the workplace to ensure that
the employees are being treated fairly and they are not being taken advantage of the interest of another party
of organization. By providing fair wages and justice, it is one way to protect the employees rights in terms
of payment so that they will stay loyal towards the organization. When employees are treated fairly and
with justice, they tend to be motivated in performing in their responsibilities and this indirectly contributes
to the success of organization goals. From different perspective, the non profit sector seem to have a lower
wage dispersion than for profit sector. In terms of justice, higher distributive and procedural justice will
lead to a higher job satisfaction of the employees while low distributive and procedural justice is negatively
related turnover intentions. Looking at some of the current issues, today, it has become a prevalent practice
to use minimum wages to determine fair wages and it is a growing concern for developing countries. In
Malaysia, it is evident that SMEs have less readiness towards facing the consequences of implementation
of minimum wage policy compared to bigger firms. However, it is significant to implement it for the benefit
of SMEs and the society in the long term because SMEs are foundation and pillar of growth in economy in
driving growth of industry. Lastly, when talking about fair wages and justice, issue on discrimination and
gender wage gap arises. Even until today, women and men are not treated equally and women are being
paid less than men for the equal value of work contributed. This issue is a worldwide issue which needs
closer attention. Gender discrimination should be eliminated as women should be treated fairly and with
justice.

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6.0 References

i) Goksoy, A., & Alayoglu, N. (2013). The Impact of Perception of Performance Appraisal and
Distributive Justice Fairness on Employees' Ethical Decision Making in Paternalist
Organizational Culture. Performance Improvement Quarterly, 26(1), 57.
doi:10.1002/piq.21137

ii) Hamann, D. J., & Ren, T. (2013). Wage inequality and performance in nonprofit and for-profit
organizations. Nonprofit Management and Leadership, 24(2), 207228.
doi:10.1002/nml.21085

iii) Rasch, R., & Szypko, M. (2013). Perception is Reality: The Importance of Pay Fairness to
Employees and Organizations. WorldatWork Journal Q, 3, 2013.

iv) J., & C. (2009, August 20). How Does Distributive Justice Affect Work Attitudes? The
Moderating Effects of Autonomy.

v) Astrid Pennerstorfer and Ulrike Schneider (Nov 2010) What Determines the (Internal)Wage
Distribution in Non-Profit Organizations?, Vol. 63, no. 4, 580596, (n.d.).

vi) Judith E. Grey-Bowen,The Donovan Society LLC (2010) :Gender Compensation

Discrimination: An Exploration of Gender Compensation Gap and the Higher Education
Connection, Vol. 2, No. 1, pp. 65-82

vii) Rusli Ahmad, Siti Mariam Abdullah, Kuan Mei Yang (June 2015) :The mediating effect of
organizational justice in determining the relationship between performances based pay and
employees turnover intention, Vol. 2

viii) (n.d.). Retrieved from http://www.malaysiakini.com/letters/291333

ix) (n.d.).Retrieved from

https://www.researchgate.net/publication/267809664_Gender_wage_differentials_in_the_Ma
laysian_services_sector

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x) Wage (n.d.) In Wikipedia Retrieved November 20 2016 from
https://en.wikipedia.org/wiki/Wage

xi) Fair Wages Network (n.d.). Definition of Fair Wages. Retrieved November 20 2016 from
http://www.fair-wage.com/en/fair-wage-approach-menu/definition-of-fair-wages.html

xii) Education Observer Career Discussions (2013) Difference between living wage, minimum
wage and fair wage. Retrieved November 20 2016 from
http://www.educationobserver.com/forum/showthread.php?tid=12877

xiii) Canadian Union of Public Employees (2016) Minimum, living and fair wages: Whats the
difference?. Retrieved November 20 2016 from http://cupe.ca/minimum-living-and-fair-
wages-whats-difference

xiv) Total Reward Solution (2015) Minimum Wage, Living Wage and Fair Wage: How Do They
Differ and Why Should You Care?. Retrieved November 20 2016 from
http://www.totalrsolutions.com/minimum-wage-living-wage-and-fair-wage-how-do-they-
differ-and-why-should-you-care/

xv) Equality and Human Rights Commission (2016) The importance of equal pay. Retrieved
November 20 2016 from https://www.equalityhumanrights.com/en/advice-and-
guidance/importance-equal-pay

xvi) Center for American Progress (2009) Six Reasons Why Equal Pay Is Still Important.
Retrieved November 20 2016 from
https://www.americanprogress.org/issues/women/news/2009/01/15/5476/six-reasons-why-
equal-pay-is-still-important/

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5.0 Appendices

32