Is your firm’s reward system affect your overall performance? An emphasis on Equity theory in compensation strategy

Abstract

To be strategic, rewards must support and advance the organization's business and people objectives. Towards a strategic approach to rewards, a total reward strategy may include cutting-edge learning programs and flexible working arrangements. The current study examines the relevance of equity theory while designing the overall compensation system in a firm. Accordingly, the study was conducted in a UAE-based contracting firm, purposively. The theory assisted in preparing a questionnaire and a sample of 150 was selected by stratified proportional sampling for diverse demographic responses. Descriptive statistics, Confirmatory Factor analysis, and Path analysis were used to test the conceptual model. It maintained the significance level of the latent variables to design an appropriate compensation program in the firm. Hence, firms taking a strategic approach to compensation realize the need for innovative methods to meet strategic goals. Finally, the study paves the way to ensure that what is being rewarded is consistent with the firms’ objectives as compensation systems need to expand and evolve.