The Impact of Job Grading and Perceived Fair Pay on Employee Satisfaction and Performance: The Mediating Role of Compensation and Benefits

Abstract

This study investigates the multifaceted relationship between job grading, per- ceived fair pay, and employee outcomes, specifically employee satisfaction and performance, within the framework of modern human resource management. Drawing on foundational theories such as Adams’ Equity Theory and Herzberg’s Two-Factor Theory, the research further incorporates the mediating role of compensation and benefits, alongside additional influential factors including recognition, career advancement, and work-life balance. While prior literature has explored these variables in isolation, this study presents an integrated structural model to better understand how these elements collectively influence employee behavior in contemporary organizational contexts.

A quantitative research design was adopted using a structured questionnaire administered to a diverse sample of 300 employees from both public and pri- vate organizations. Measurement items were sourced from validated scales and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The model demonstrated strong reliability and validity, and all hypotheses were statistically supported. Key findings reveal that job grading and perceptions of fair pay significantly influence employee satisfaction, both directly and indirectly through compensation and benefits. Furthermore, recognition, career advance- ment opportunities, and work-life balance were also found to be strong predictors of satisfaction. Employee satisfaction, in turn, had a robust positive effect on employee performance.

This study contributes to the literature by applying the Hay Group’s structured job evaluation methodology in a quantitative model, a novel approach seldom seen in past studies. The inclusion of multiple HR constructs within a single model offers a more holistic understanding of what drives satisfaction and perfor- mance in the workplace. From a practical standpoint, the findings underscore the need for HR managers to implement transparent job grading frameworks, equi- table compensation systems, and supportive non-monetary initiatives to optimize workforce engagement and productivity.