Situation: The level of pay is believed to be the main factor in pay satisfaction.
In fact: In Russia, as in many other countries, it is not the amount of pay that plays the main role in determining pay satisfaction, but the difference between actual income and the average of the reference group.
Researcher Anastasia Dubnovitskaya of HSE University has studied the impact of social comparison on the level of Russians' pay satisfaction. The study used data from the Russia Longitudinal Monitoring Survey — HSE University (RLMS-HSE) from 2002 to 2018. It turned out that the main contribution to Russians' pay satisfaction is the difference between their actual pay and the average wages of the reference group — people with similar characteristics. The size of one's own wages was of secondary importance. This situation is common to both men and women. Applied Econometrics (RANEPA) has published an article with the results of the study.
Pay satisfaction is one of the most important categories for human resource management. It influences remuneration policy as well as employees’ behaviour.
However, as Anastasia Dubnovitskaya points out, the nature of pay satisfaction has not been sufficiently studied. ‘Little is known about the process by which individuals determine whether their pay is fair or not,’ comments the researcher. For the most part, it is limited to the understanding that pay is relative.
There are numerous motivational theories regarding pay that suggest that social comparison is an important factor — one that is sometimes neglected undeservedly in compensation policy making. Moreover, empirical evidence suggests that the subjectively perceived well-being of an individual is closely related to relative income — the difference between his or her income and that of the reference group.
However, Anastasia Dubnovitskaya notes that the relationship between the earnings of the reference group and pay satisfaction can be different. Research shows that this relationship is negative if other people’s higher wages provoke feelings of unfairness, envy or rivalry. It can also be positive if the person sees the wages of the reference group as his or her probable future wage — the so-called tunnel effect.
If the employee’s pay corresponds to the average wage of people with the same characteristics — age, gender, education, etc — this employee will consider it fair. ‘The lower the relative income — the difference between an individual’s actual income the expected average income of a representative of the reference group — the greater the perceived unfairness,’ the researcher says.
It is the individual who defines his or her own reference group, usually based on socio-cultural and demographic characteristics. However, there are studies that look at the impact of co-workers’ wages. As the author of the study explains, people most often choose their colleagues as an object of comparison in the context of wages.
In Russia, there is a lack of data related to evaluation of the impact of relative income on Russians' job and pay satisfaction. Related studies are quite scarce. Although some of them rely on RLMS-HSE data, they do not present a complete picture of the nature of the phenomenon in Russia.
The study used data from the Russia Longitudinal Monitoring Survey — HSE University (RLMS-HSE). The question on pay satisfaction was first brought up by the RLMS-HSE in 2002. It read ‘Please describe how satisfied or dissatisfied you are with your pay’. There were eight possible responses ranging from ‘Completely satisfied’ to ‘No response’. The study focused on three periods: 2002, 2010, and 2018. The number of observations ranges from 4,239 to 7,979.
As part of the study, a specific model was created to assess expected wages and pay satisfaction. ‘Expected wages were considered as a function of age, overall work experience, female gender, the availability of vocational secondary education, the availability of higher education, residence in the regional centre and city, Moscow or St Petersburg,’ Anastasia Dubnovitskaya explains. The pay satisfaction model included expected wages — calculated in the first step — and the deviation of actual wages from the expected ones.
The pay satisfaction model was estimated separately for male and female subsamples. This is because many studies have noted the paradox of the contented female worker — the fact that despite lower salaries, authority, promotion, etc, women tend to demonstrate higher job and pay satisfaction than their male counterparts who often enjoy higher incomes.
It turned out that all the factors selected for the model — employment history, the existence of subordinates, education, residence in a regional centre, a city, Moscow and St. Petersburg — have a positive effect on wages. It was also confirmed that when other factors are equal, women earn less. According to Anastasia Dubnovitskaya, this does not contradict numerous RLMS-HSE-based studies in this field.
The results also show that in 2002, the deviation of actual wages from expected wages made the largest contribution to the relative range of pay satisfaction — 3.2 times more than that of expected wages. This figure was 2.1 times and 1.9 times in 2010 and in 2018, respectively.
These estimates prove that social comparison plays a markedly greater role in determining pay satisfaction than expected or actual wages in Russia, the researcher explains. ‘In layman’s terms, the amount of a peer’s pay is much more important for an individual than his or her own wages. People tend to compare their salary to the deviation of their salary from their peers’ average pay,’ says Anastasia Dubnovitskaya.
There is some difference between certain groups in the influence of social comparison on pay satisfaction in Russia. For example, the effect of social comparison decreases somewhat for people with the lowest incomes. According to the researcher, however, this difference is insignificant.
Also, Russian men and women seem to demonstrate no fundamental difference in their perception of expected wages or the deviation of actual wages. The researcher says that to a certain extent, this contradicts international research and needs to be analysed further.
The results of the study can be useful to HR managers and top executives. According to Anastasia Dubnovitskaya, understanding the nature of pay satisfaction can increase labour productivity while reducing staff turnover and absenteeism without incurring higher costs. This is especially important for Russia in the face of the unfavourable investment climate.
‘The study contributes to existing theories of industrial psychology, highlighting the importance of social comparison as opposed to wages in Russia. It also contributes to economics as one of the few empirical studies in the field,’ the researcher says.