Addressing Internal Stakeholders’ Concerns: The Interactive Effect of Perceived Pay Equity and Diversity Climate on Turnover Intentions

Abstract

Stakeholder theory has received greater scholarly and practitioner attention as organizations consider the interests of various groups affected by corporate operations, including employees. This study investigates two dimensions of psychological climate, specifically perceived pay equity and diversity climate, for one such stakeholder group: racioethnic minority professionals. We examined the main effect of U.S. professionals' of color pay equity perceptions, and the influence of perceived internal and external pay equity on turnover intentions. We also investigated the interactive effect of perceptions of pay equity and diversity climate on turnover intentions. Results indicated that pay equity perceptions were negatively associated with turnover intentions. Our findings showed that perceptions of internal pay equity influenced turnover intentions but perceptions of external equity did not. Further, perceptions of pay equity and the diversity climate interactively influenced turnover intentions. Participants who reported an unfavorable diversity climate and a low perceived pay equity were most likely to report turnover intentions. Simple slope analysis for moderate pay equity also was significant. When perceived pay equity was high, favorability of the diversity climate did not affect turnover intentions. The findings have useful practical implications. When pay was perceived as equitable, participants appeared to pay less attention to the diversity climate. Employee pay equity perceptions may be malleable; sharing information with employees about pay levels during performance reviews may enhance perceptions of pay equity. The findings suggest that, consistent with stakeholder theory, organizations should attend to perceptions of both pay equity and diversity climate when striving to minimize the turnover intentions of professionals of color. Keywords Corporate social responsibility Á Perceived pay equity Á Diversity climate Á Turnover intentions Á Professionals of color Abbreviations CSR Corporate social responsibility DC Diversity climate TI Turnover intentionsStakeholder theory has received greater scholarly and practitioner attention as employers consider the interests of various groups affected by corporate operations, including employees. In recognition of the stakeholder interests of racioethnic minority group employees, many U.S. organizations espouse a positive diversity climate, as evidenced by both the plethora of diversity-related information on their websites and the increasing number of chief diversity officers (Anderson and Billings-Harris 2010). However, minority employees, the sample for this study, tend to turn over at higher rates than majority employees (Hofhuis et al.

Using the shifting standards model of stereotype‐based judgments to examine the impact of race on compensation decisions

“…They suggest more subtle interventions as the best way to combat implicit biases, with a proactive focus on goal attainment rather than focusing on prejudices and racial differences (Amodio & Swencionis, 2018; Tomlin & Bradley‐Geist, 2016). However, it is likely that if executives focus on creating an organizational climate that values diversity, equity, and inclusion, then they will recruit, hire, train, and compensate in a way that will lead to less implicit and explicit bias, more equitable and transparent policies, and more favorable organizational outcomes (Buttner & Lowe, 2017; Chrobot‐Mason & Aramovich, 2013; McKay et al., 2009).…”

The Evolution of Diversity Climate Research: A Review and Synthesis

“…Tajfel and Turner (1979), reveal the fact in their experiments called minimal group paradigm, that even artificial groups, which do not normally exist, are sufficient for people to favor their own groups and see them superior to others. (McKay et al 2007(McKay et al , 2009Price et al 2005Price et al , 2009Hofhuis et al 2012Hofhuis et al , 2016Buttner et al 2009;Avery et al 2013;Dwertmann et al 2016;Brimhall et al 2014;Randel et al 2016;Madera et al2016;Cole et al2016;Buttner and Lowe 2017;Paolillo et al 2017).…”

“…According to the equity theory, employees desire an environment in which all employees are treated equally in the work environment and this desire has an impact on the employees' motivation. It is known that perceived wage inequality significantly affects variables such as job satisfaction, emotional organizational commitment, absenteeism and intention to quit (Goby et al 2015;Buttner and Lowe, 2017). Adams' Equity Theory is accepted as the basis of distributive justice.…”

Reconstructing the Concept of Diversity Climate – A Critical Review of Its Definition, Dimensions, and Operationalization

“…Diversity climate refers to the perception employees have of their organization's commitment to recruiting and celebrating people with different backgrounds Chung and Jackson (2015) Academy of Management Journal Shared perceptions among employees in a unit that people are treated fairly and are integrated into work environment regardless of background Buttner and Lowe (2015) Journal of Business Ethics Employee behaviors and attitudes that are grounded in perceptions of the organizational context related to women and minorities Jansen et al (2016) Group Processes and Intergroup Relations…”