What do unions do - pay satisfaction among unionized and non-union employees

Ivana Načinović Braje, PhD, ivana.nacinovic@efzg.hrLovorka Galetić, PhD, lgaletic@efzg.hr

Tajana Šipušić Munđer, BSc, tajana1@gmail.comUniversity of Zagreb, Faculty of Economics and Business, Zagreb, Croatia

AbstractThis paper explores the relationship among pay satisfaction and union membership. Current research on this issue has provided contradictory results. Pay satisfaction was measured as a multidimensional item using pay satisfaction questionnaire (PSQ) consisting of pay level, benefits, pay raises and pay structure and administration. Research results show that union members show a higher average level of satisfaction for all explored dimensions of pay satisfaction. Theoretical and practical implications that might have caused such findings are discussed.

Key words: pay satisfaction, union

1. Introduction

Compensation is an employment outcome of primary importance to vast majority of employees. It has a multidimensional nature since it incorporates not only pay level, its structure and benefits, but also systems for recognizing individual performance differences and rewarding it adequately. Furthermore, reward systems ought to be designed in a way to reflect corporate culture and values, but in the first place to facilitate achieving desired business outputs and outcomes. Such an important role of pay in organisations and the pay as motivator has been recognised long time ago; it was a part of Taylor’s (1911) “Scientific management”, a classic that laid foundations of organisation and management science. However, it has not been until the last decades that scientists began exploring additional roles that pay can take over, besides pure compensation for one’s work.

Pay determination, together with terms and conditions of employment, can be defined by the employer or, in case of union presence, agreed by collective bargaining among the union, as the legal representative of employees, and the management, as the legal representative of the firm. Lately there have been major changes in the manner in which pay is determined with a decline of use of collective bargaining and its replacement by systems unilaterally set by firms, which depend upon management discretion. Although joint regulation still predominates in the public sector, the remainder most commonly has pay set unilaterally by the employer, commonly at the workplace level (Forth &Millward, 2002). Final impact of unions on wages depends on the larger context and the industrial relations system including social, political, legal, institutional and economic environment in which unions operate. For these reasons, the magnitude of union impacts (on pay and other) is likely to vary across countries.

Managers’ objectives of effectiveness and efficiency often contradict unions’ primate goal - improving the economic position of their members and the redistribution of the corporate profits

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to employees. Trade union will want their members’ pay to match market rates, keep ahead of inflation and reflect any increase in the prosperity of the business. The amount of pressure unions can exert on pay levels will depend on the relative bargaining strengths of the employer and the union (Armstrong, 2010), but the set of firm/managerial objectives will most likely not be shared with the union.

A wide variation in pay systems and structures based on the discretion in the reward setting procedural mechanisms allows for an assessment of employee satisfaction with different pay practices. The research on compensation attitudes is being neglected when compared to other compensation topics, although compensation systems constantly evolve. Such a research is valuable since it could result with identification of distinct pay practices that are strongly related to pay satisfaction. Consequently, satisfaction with pay, if has any instrumental power within organisations, can be a predictor of individual and organisational behaviour.

Pay satisfaction is inevitably (subjective) employee perception of the firm’s pay practice. Considering historically important role unions had in pay determination processes and the union impact on the management of reward, it is possible to analyze weather there could be any relationship among union status and pay satisfaction. This paper explores relationship among union membership status and pay satisfaction in a large firm in Croatia.

2. The role of unions in compensation setting processes

Everyone “knows” that unions raise wages. The questions are how much, under what conditions, and with what effects on the overall performance of the economy” (Freeman and Medoff, 1984, p. 43).

There is a general agreement that, on average, unionized organizations pay higher wages than otherwise comparable non-union ones. The average estimate of the mean union wage gap from aggregated cross-section models is around 15% for USA and 8% for Britain (Booth, 1995: 150), with considerable diversity among individuals or sectors (e.g. usually wage gap being higher for manual employees and women as well as with higher gap in case of decentralized collective bargaining). However, there is fewer consensus on the trend of this effect over time with studies having contradictory findings. Theoretical discussions even blamed high compensation received by union members for the decreasing union representation. Due to compensation differentials for union members that exceed the productivity differentials, non unionized firms are in position to underbid unionized firms, which in turn could lead to a decline in union market share and possibly in the long run cause decreased union representation, although we lack empirical support of such notions (Belman & Voos, 2006). The proportion of the workforce as members of the union is showing a decreasing trend, as well as the proportion of the workforce who have their pay determined by the collective bargaining (Heery in White & Drucker (eds.), 2000). This decline may be attributed to reduced influence of unions in securing employee benefits, especially after organisations implemented human resource functions (departments). Furthermore, due to extended application of collective labour agreement provisions to all employees of the organisation (no matter of the union status)

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newcomers do not have the incentive to join the union. All mentioned erodes union bargaining power over pay and, given such trends, is possible to have an effect on pay satisfaction.

Union pressure can influence several phases of the reward management process. Critical decisions are shown in the following table.

Table 1: Unions and compensation decisionsStrategic decision Union pressureSetting the level of reward trough the process of pay determination

Raising the pay of their members

Deciding the distribution of rewards trough an internal pay structure

Compressed pay structure

Selecting reward systems which relate earnings to work performed (performance)

Inhibiting the use of systems that link rewards to performance and thereby place earnings at risk

Determining the range of rewards which, in addition to pay, can include fringe benefits, career progression, opportunities for development and psychological rewards, as as job satisfaction and recognition

Extend (or restrict) the range of rewards offered

Establishing procedures for the management of rewards Promoting transparency in the management of rewards

Source: Heery, E. (2000) Trade unions and the management of rewards. In White, G., Drucker, J. (eds.) Reward Management: A Critical Text, Florence: Routledge, p. 53-54.

Trade unions can modify wage structure in several ways, and it typically starts by raising pay levels of workers covered by collective bargaining agreements, as argued by Freeman & Medoff (1984). Depending on their bargaining power, trade unions will attempt to pressurize managements into increasing pay by at least the amount of inflation. They will press for higher rates on the grounds of the organization’s ability to pay and trends in market movement and the going rate for specific jobs, and they may attempt to restore lost differentials (Armstrong & Murlis, 2004). Greater importance in wage formation is generally assigned to “rate standardization” i.e. single rate of pay applied to all workers in a specific job category and seniority based increases.

A further goal of the trade union wage policy is the pursuit of “equity criteria” in setting rates of pay, to reduce differentials based on specific characteristic of the individual (ability, merit, etc.) rather than on job task or responsibilities. The wage structure in the unionised sectors will appear “flatter” than the non-union wage structure (Freeman, 1990). In particular, collective bargaining agreements seek to fix both the number of job categories and the rate of pay for each job, thus limiting the ability of the firm to remunerate individual workers differently (Dell’Aringa & Lucifora, 1994). Unions attempt to establish uniform wage rates for comparable workers and positions within an organization. Barling, Fullagar & Kelloway (1992) explain that this is achieved through two policies: unions attempt to establish a single pay rate for each job class (which reduces pay disparity) and basing increase in wages based on seniority or cost of living (but not on performance or personal characteristics). Such union wage effect however varies with individuals; it is higher for women, minorities, younger workers and junior blue collar workers

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(Freeman & Medoff, 1984). However, there is another side to this union impact on pay, highly skilled workers gain less from an union job.

Union gains with respect to pay level also influenced non-union compensation practices since many non-union companies offered similar compensation to their members, usually to avoid unionisation, which phenomenon is known as the spill-over effect (Henderson, 2006:88).

Although unions are known for its efforts to compress firms’ pay structure, their effect on the dispersion of pay is actually been acknowledged as twofold: (1) they can widen pay inequality by raising the earnings of their members relative to those of non-members although (2) they can narrow pay inequality by bargaining for a compressed pay structure in companies where they are recognized. Narrowing of pay dispersion within the unionized sector outweighs the widening of pay dispersion among unionized and non-unionized firms, so the net effect of the union wage bargaining is to reduce income inequality (Freeman, 1990, Dell’Aringa & Lucifora, 1994).

Unions have been successful in removing performance evaluations as a factor in determining individual worker’s wages (Dell’Aringa & Lucifora, 1994). The reasons for the union disapproval of these output-based payment systems include: a threat to security and stability of employee earnings, incentives generate pervasive effects and can frustrate employees, negative effect on the pay structure and tendency to widen the dispersion of pay, threatening to the union capacity to develop collective organization, and finally, contingent pay represents a threat to the procedural role of unions as the collective representative of employees so it might be linked to attempts by employers to exclude unions from the process of pay determination (Heery, 2000). There is some evidence that such union anti performance rewarding policy is softening as incentives have been seen as instrumental in increasing employee pay and as especially important for employees in managerial positions. Nevertheless, there are cases when unions support particular forms of contingent reward. For example, in the USA these are gain-sharing plans whereas in Britain large unionized firms might be using profit-sharing (Heerey, 2000).

Range or form of rewards is another area of union impact. As Heery (2005) explains, unions more often include in the bargaining process other aspects of both extrinsic and intrinsic compensations, such as training and development. With regard to benefits, there is clear evidence that unions extend the range of rewards offered in this form. Unions have a positive impact on employee benefits with unionized industries spending more on fringe benefits than comparable non-unionised firms (Freeman & Medoff, 1984). Unions furthermore impact the composition of benefits since they opt for compensation in the form of deferred compensation such as pensions, health care, insurance or paid time for not worked (Freeman & Medoff, 1984).

Union influence over reward procedure is the final, but integrative, role that unions may have in achieving pay satisfaction. Through its collective actions, unions are able to assure fair and consistent treatment of its members. Also, as Mitchell (1980) denotes, union wages are more secure as they are less sensitive to fluctuations in the economy than wages in non-unionized industries. It is likely that the effect of an union is to raise the awareness of both openness and sense of fairness of pay. The objective of union negotiators is to obtain the best pay package possible, and

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the bargaining process may cause employees to believe their pay is as much as the employer is able to pay. In addition, union contracts force management to be consistent in the administration of pay policies and contract terms (Nelson et al. 2008).

Union leaders fight hard for member’s compensation in order to maintain their loyalty and support. However, decreasing union coverage indicates that union influence is in decline; known as concessionary bargaining (Henderson, 2006:88).

3. Defining pay satisfaction

The earliest writings on the topic of job satisfaction emphasized the critical role that compensation played in employee’s affective reactions to their job, Hoppock’s (1935; as argued in Curral et al., 2005) seminal study of job satisfaction revealed that dissatisfaction with wages was the most important reason for voluntary separation with a firm. It was in the 1960s that researchers first systematically studied factors that might affect employee pay satisfaction (Williams et al., 2006), although the distinction among the dimensions of pay satisfaction was not recognized in empirical research until the late 1970s or early 1980s. However, Heneman and Judge (2000) lament the fact that the research on pay satisfaction has not kept up to date considering the changes in compensation systems that are occurring within organizations.

The word pay in the term “pay satisfaction” considers its broad form, including both direct and indirect payments. The meaning of the word satisfaction, from an employment perspective, includes a process of fulfilment or gratification of a need (Henderson, 2006:51). Pay satisfaction is defined as the amount of overall positive affect (or feelings) individuals have toward pay (Miceli & Lane, 1991). However, the satisfaction with pay can be explored at different levels, as satisfaction with pay level, satisfaction with the system that determines and delivers pay, or as Williams et al. (2002) explore - satisfaction with benefit system and benefit level. Although the multidimensional nature of pay satisfaction was often recognised (ranging in research from 1-5 dimensions) is widely acknowledged and accepted after Heneman & Schwab (1985) pay satisfaction questionnaire (PSQ) that assessed multiple dimensions of pay satisfaction (pay level, benefits, pay raises and structure and administration). PSQ initially comprised of all 5 areas, but the subsequent exploratory factor analysis suggested that combining structure and administration yields a more parsimonious measure of pay satisfaction (Judge & Welbourne, 1994), which is as such 4 point scale of pay satisfaction most used to current date. The measure of aggregate pay satisfaction can thus consist of several items, and as Heneman & Judge (2000:65) argue pay satisfaction is in fact a misnomer, and should be useful to replace it with a designation to the type of pay satisfaction being referenced.

Theoretical explanations of pay satisfaction can be found within several theories. Organizational justice, in the part of procedural and distributive justice, is a strong antecedent of satisfaction (Williams et al., 2002). Pay satisfaction is in a way seen as surrogate for fairness and justice. There are a number of theories of distributive justice that explain the causes of pay level satisfaction, including Adams’s (1963) equity theory and its close derivative Lawler’s (1971) discrepancy theory. Vroom’s (1965) expectancy theory can also be used as a predictor of pay satisfaction. Equity theory suggests that employees evaluate the perceived inputs and outputs of referent others, and trough this process identify levels they consider appropriate and desirable.

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Lawler (1971) suggests that satisfaction or dissatisfaction with pay is influenced by the discrepancy between what employees perceive they should receive for their inputs (or their pay) and what they contribute to the organization. Vroom’s (1964) expectancy theory helped clarify how pay influences future behaviour. According to expectancy theory, three components determine motivation: 1) a judgment regarding the likelihood that an effort leads to a certain level of performance (expectancy); 2) a judgment regarding the likelihood that this level of performance leads to a certain outcome (instrumentality); and 3) the importance of the outcome to the individual (valence). This theory suggests that pay motivates behavior only if valued by the employee or if pay allows individuals to obtain some other highly valued outcome. Procedural justice may be more strongly related to satisfaction with the pay system than to pay level satisfaction.

In a given organization satisfaction or dissatisfaction with pay includes the degree to which (Armstrong, 2010):

individuals feel their rate of pay or increase has been determined fairly (the principle of procedural justice);

rewards are commensurate with the perceptions of individuals about their ability, contribution and value to the organization founded on information or beliefs about what other people, inside and outside the organization, are paid (the principle of distributive justice);

individuals are satisfied with other aspects of their employment – for example, the quality of working life, work–life balance, their status, promotion prospects, opportunity to use and develop skills, and relations with their managers and colleagues.

Pay (dis)satisfaction creates a dissonance that the person seeks to reduce. The dissatisfaction reduction may occur trough changing perceptions of the comparison with others input/output, changing referent others or undertaking changes in actual behaviour that will restore equity (Heneman & Judge, 2000:62).

A modelling of pay level satisfaction according to Williams et al. (2006) is shown in Figure 1. The model shows that the primary determinant of satisfaction is the difference between the pay that is deserved and therefore should be received and the actual pay that is received (i.e. distributive justice). Such determinant depends upon numerous antecedents such as perceived inputs related to job and other (age, gender, marital status etc.), perceived job characteristics, input/output ratio of referent others as well as the actual pay and pay raises received. Furthermore, pay level satisfaction is influenced also by perceptions of pay policies and administration and organizational justice (distributive and procedural). The model shows also possible consequences of pay level satisfaction, seen in employee behaviour and performance.

Figure 1 clearly emphasizes possible antecedents and consequences of pay level satisfaction. Although some determinants are objective in its nature (e.g. job characteristics or actual pay), overall pay level satisfaction greatly depends upon employee perceptions.

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Figure 1: Pay level satisfaction antecedents and consequences

Source: Williams, M. L., McDaniel, M. A., Nguyen, N. T. (2006) A Meta-Analysis of the Antecedents and Consequences of Pay Level Satisfaction, Journal of Applied Psychology, 91 (2), p. 392-413.

The motivation to understand pay satisfaction is varied. However, most influential reasons include (Williams et al., 2006): (1) the fact that employee compensation accounts for one of the largest costs of doing business, (2) the expectation that the relationship among compensation and work outcome is mediated by attitudinal reactions to pay, (3) if employers understand the antecedents of pay satisfaction, then they will be able to influence employees’ level of satisfaction.

Table 2: Relationship among pay satisfaction and other variablesFactors with positive link to pay satisfaction Factors with negative link to pay satisfactionClear effort- reward link (Kessler et. al, 2006)Understanding of pay criteria (Kessler et al., 2006)Employee participation in the development of the pay system (Jenkins & Lawler, 1981)Organizational level performance (Currall et al., 2005)

Discrepancy between perceived amount of pay that should be received and perceived amount of pay received (Williams et al., 2006)Average employee intention to quit (Currall et al., 2005)Turnover and turnover intentions (Motowidlo, S. J., 1983)

Pay satisfaction is found to be positively related to two principles: a clear effort-reward link and understanding of pay criteria (Kessler et. al., 2006). Employees are more satisfied with pay when their organizational pay system accords with traditional rather than newer practices which may suggest that some embedded norms still have a powerful influence over employee perceptions of pay (Kessler et al., 2006).

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Perceived inputs Non job related Job related

Perceived job characteristics

Perceived inputs and outcomes of referent others

Actual pay and pay raises receives

Perceived amount of pay received

Discrepancy between perceived amount of pay that should be received and perceived amount of pay received

Perceived amount of pay that should be received

Pay level satisfaction

Correlates: Distributive

justice Procedural justice

Consequences: Withdrawal

cognitions and behaviors

Turnover intentions Absenteeism Voluntary turnover

Job performance

Perceptions of pay policies and administration

Pay satisfaction could have an impact on both individual and organizational level outcomes. Individual level actions may be cognitive or behavioural. Heneman and Judge (2000:77) describe these as input changes (performance, commitment, trust), outcome changes (salary negotiation, theft), steps toward change (job interview sign up, job search, pro-union voting) and withdrawal (turnover intention, turnover, job transfer, lateness). Curral et al. (2005) explain the relationship among aggregate pay satisfaction and organizational performance based on a three point argument. First, individual pay satisfaction leads to differential individual behavioral outcomes, as second, these differential behavioral outcomes become shared and produce an emergent collective structure that results in either functional or dysfunctional organizational attitudes, norms and behaviors. Finally, the constructive or destructive behavioural based, collective attitudes, norms and behaviours will subsequently impact organizational performance and functioning.

Considering the widely acknowledged gender pay gap, one would expect that women should be less satisfied with pay level. However, researchers have established the paradox of the contended female worker that describes that although female workers earn lower wages this does not necessarily result in their pay level dissatisfaction.

We can expect that pay satisfaction will be related to general job satisfaction. Most scales used to measure job satisfaction include a measure of pay or compensation satisfaction, where these compensation satisfaction subscales emphasize satisfaction with compensation level as opposed to compensation systems (Williams et al., 2006). Williams et. al. (2006) meta-analysis concludes that the consequences or outcomes of pay (level) satisfaction are strongly related to attitudinal (e.g. turnover intention) than behavioural outcomes.

4. The relationship among union membership and pay satisfaction

Dissatisfaction with one’s pay, objective pay level and perceived pay inequality has been related to pro-union voting (Barling, Fullagar & Kelloway, 1992; Davy & Shipper, 1993). As we showed that employee pay satisfaction can have roots in the perceived equity, it is important to explain potential union impact on the equity ratio: (1) unions attempt to establish a uniform pay rate for a job class so they directly affect outcome received by individuals (and oppose to merit based incentives), (2) unions may affect the weighing of specific inputs for individuals so they clarify what inputs are relevant for compensation decisions (for example seniority), (3) unions might affect the choice of referent others to be compared with (e.g. other members of the unit or members of the same pay grade) (Barling, Fullagar & Kelloway, 1992).

On the basis of procedural justice theory, employees will show a higher level of overall pay satisfaction in case they participate in compensation determination processes and administration. According to the theoretical basis of distributive justice, manifested trough perceived fairness of the rewards that employees receive, employees will show a higher level of pay satisfaction if their perceive their pay as fair (according to effort, others’ compensation or simply personal expectations). However, Tremblay & Roussel (2001) found that among Canadian managers distributive justice is a better predictor of pay satisfaction than procedural justice perceptions.Considering that unions are legal representatives of employees in such processes one could expect that union members show a higher level of overall satisfaction with pay. However,

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research has shown that it is possible to document both facts: that unionism has positive and negative effect on pay satisfaction.

Gomez-Mejia & Balkin (1994) found that union members were more satisfied with their pay than non-union members. They argue that union membership can influence pay satisfaction in several ways: (1) union may affect perceptions of pay by influencing pay level through collective bargaining which increases members’ pay; (2) unions introduce grievance procedures to allow their members to voice over their dissent over pay levels. In this way employees feel they have voice in decisions regarding pay. Similar finding was obtained by Evans & Ondrack’s (1990) study of 1,193 male blue-collar workers. They found that pay satisfaction was positively affected by union membership and argue that such result may be due to (1) unionization enhancing perceived fairness of pay, or (2) the fact that measuring and controlling for fringe benefits in this analysis could not be done.

A number of papers have come to the puzzling conclusion that union members are generally less satisfied as compared to non-unionised workers (Bryson, Cappelari & Lucifora, 2004; Heywood, J., S., Siebert, W. S. & Wei, X., 2002).

Bryson, Cappelari & Lucifora (2004) show that union members report satisfaction levels that are significantly lower than non-members, both as overall job satisfaction and satisfaction with pay (although the gap is wider for overall job satisfaction). However, members’ dissatisfaction with pay is not significant once personal and job characteristics are accounted for, suggesting that members are less dissatisfied with pay than with non-pecuniary aspects of their jobs. The reasons proposed by authors for such finding include unobservable individual attributes – higher aspirations from their working life – lead employees to unionise and also make them feel unsatisfied with their job.

Heywood, J., S., Siebert, W. S. & Wei, X. (2002) found that union members had lower overall job satisfaction (but also satisfaction with pay) than non-union members. They believe these results suggest that unions do not simply attract the dissatisfied, as previously suggested. By contrast, the greater satisfaction expressed by public sector workers seems largely a consequence of sorting, with those who are more easily satisfied being drawn to the public sector.

Heery (2000) argues that unionized workers are less likely to report dissatisfaction with their pay (tough they tend to be more critical of reward management) due to possible positive effects of union wage bargaining to the national economic performance. Two separate mechanisms allow these positive effects: raising wages seeks employers to raise productivity, and second, promoting interests of employees reduces workplace grievances and labor turnover.

Evidence shows that pay level is only marginally related to pay satisfaction. Simple pay level-pay satisfaction correlation is quite weak (r=0.15 according to Heneman & Judge (2000:71) or 0.23 as argued by Judge et al. (2010) by meta-analysis of 92 independent samples). This finding can have a great impact on union work since it is an indicator for unions not to fight only for pay level but also other aspect of pay and terms of employment.

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Union satisfaction was recognized as an antecedent of pay satisfaction by Curral et al. (2005). Union officials engage in collective bargaining to negotiate salaries for employees. Employees form opinions about competency of their union representatives, by observing whether officials are well prepared, resourceful and motivated during the bargaining process. Such observations about the bargaining process influence how satisfied are employees with the outcome of negotiations over pay, but also can have an impact on their overall pay satisfaction.

Although one could expect that union instrumentality (in achieving compensation goals) is a predictor of union loyalty, satisfaction with pay did not show a positive relationship to union loyalty according to Morrow & McEelroy (2006). In fact, high satisfaction with grievances procedures and union communication reversed the expected positive impact of satisfaction with pay and strong safety climate on union loyalty.

5. Findings & discussion

In Croatia most collective bargaining is performed at industry level (especially construction and catering, as well as the public sector), although there are examples of large firms that have collective labour agreements arranged at the company level. Croatia is also a country where collective labour agreements get extended to all employees of establishment so the patterns of wage determination for union and non-union workers are equal. Union action is thus becoming a public good: there are incentives for workers to act as free riders, taking advantage of union action without incurring the cost involved in union membership (Booth, 1985). In 2009 some 61% of all employees in Croatia were covered by collective bargaining, and 34.7% of all employees were members of an union (Poloski Vokic & Obadic, 2012:118).

The study used to collect primary data was performed on the sample of union members and non-members drawn from the same working environment. Union membership is treated as exogenous variable. The data were collected within a large public Croatian firm belonging to (air) transport industry. At the time of research firm employed 1120 employees, out of which 848 were union members (approximately 76%). Employees belonged to one of four unions operating within the firm. Employees mostly had high school education (55%), 21% of employees hold a diploma (B.Sc, M.Sc., or PhD), whereas low qualified employees contribute to the total workforce with 24%.

Table 3: Respondents socio-demographic characteristicsGender Male 85%, Female 15%

Age 20-30 years 35%, 31-40 years 38.3%, 41-50 years 16.7%, more than 50 years old 10%

Education level

Non skilled and skilled 10%, highs school education 81.7%, bachelor degree 8.3%

Research instrument was based on Heneman & Schwab (1985) PSQ and using Likert 5-point questionnaire survey (1=lowest satisfaction; 5=highest satisfaction). The data were collected in 2012, from 60 respondents, out of which 30 were members of the union, whilst other 30 were not members of any union. Study is limited to a single establishment with other relevant control variables omitted from the analysis.

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Table 4: Pay satisfaction items among unionised and non-unionised employeesAverage rating for

Satisfaction with pay level Union members Non-union members

1. My take-home pay. 2.8 2.672. My current salary. 3.5 3.53. My overall level of pay. 3.9 3.84. Size of my current salary. 3.86 3.3Satisfaction with Raises1. My most recent raise. 2.7 2.72. Influence my supervisor has on my pay. 3.2 3.133. The raises I have typically received in the past. 2.9 2.534. How my raises are determined. 3.13 1.9Satisfaction with Benefits1. My benefits package. 3.8 3.232. Amount the employer contributes toward my benefits.

3.1 2.2

3. The value of my benefits. 2.9 1.64. The number of benefits I receive. 2.73 2.23Satisfaction with Pay Structure and Administration1. The employer’s pay structure. 3.7 3.32. Information the employer communicates about pay issues of concern to me.

3.2 3.5

3. Pay of other jobs in the firm. 3.76 3.74. Consistency of the firm’s pay policies 4.00 3.835. Differences in pay among jobs in the company. 3.5 3.366. How the firm administer the pay policies. 3.67 3.73Likert scale, 1=minimum, 5=maximum satisfaction

Table 4 shows different pay satisfaction items from the PSQ and the resulting average rating given by union members and non-members. In almost all explored categories union members show higher average pay satisfaction. Minor exception to this is found with only two items: satisfaction with current salary and satisfaction with most recent raise – where both unionised and non-unionised employees showed the same average level of satisfaction. Additionally, there is an item “satisfaction with how the firm administers pay policies” where non-union members indicated slightly higher satisfaction. Table 5 shows that union members report a higher average pay satisfaction among all explored pay satisfaction components. We are aware that measures of working conditions and job attributes could modify our results. The analysis in this paper is thus far from complete.

Pay level satisfaction is given average rating of 4 by union members, and 3 by non-union members. Benefits satisfaction was given average grade 3 in the group of union members, and 2 by non-union members. Satisfaction with pay raises were rated with average grade 3 by both union and non-unionised employees. Both unionised and non-unionised employees showed the

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highest level of satisfaction with structure and administration of pay (average rating of 4). Given that collective labour agreement expands to all employees of the examined case study firm, all employees have standardised compensation systems and receive standardised rate of pay for the job performed. However, in all examined dimensions of pay satisfaction union employees were more satisfied. It is difficult to propose simple explanations for the research findings considering the fact that all employees have the same compensation rights following from the collective labour agreement.

Table 5: Average pay satisfaction among union and non union members Average rating for

Pay satisfaction component

Total sample Union members Non-union members

Pay level 3.42 3.51 3.32Benefits 2.78 3.13 2.31Pay raises 2.82 2.98 2.56Structure and administration

3.61 3.64 3.57

Likert scale, 1=minimum, 5=maximum satisfaction

When exploring the size of the difference among pay satisfaction dimensions among unionised and non-unionised employees we found that the highest difference among union and non-union members’ pay satisfaction is found with benefits, since benefits are the area where non-union members indicate exceptionally poor level of satisfaction (average rating of 2.31). Most similar pay satisfaction among unionised and non-unionised employees is found among pay structure and administration.

The results presented in table 5 should be analysed in the context of collective labour agreement extension to all employees of the examined firm. The true research question is what brings union members to show a higher satisfaction with their pay compared to their non-unionized colleagues, although unlike non-unionized employees they are obliged to pay union membership fees. Theoretical explanations for this finding can be found in procedural justice theory – employees of the examined firm, union members, might feel that trough union representation they have a direct impact on pay an therefore show a higher overall satisfaction. Equity theory assumptions, although valid in this case, cannot explain the fact that union members show a higher level of pay satisfaction since working conditions and compensation packages are equal for both employee groups. Even more to this, union members must financially participate in supporting the union whilst non-unionised employees take all the advantages of union work. However, equity theory could only be used as an argument for higher satisfaction of union members if we had the information on the profile of employees (i.e. in case union members were dominantly low level employees whose salaries were increased by union work).

To the best of our knowledge, such dissatisfaction of non-union members could be also the result of: (1) general employee attitude towards union work and likely perception that unions are not necessary within a firm; (2) non-union members’ profile. Union membership is more prevalent among lower paid workers and because, thus in case non-union members are high positioned employees or high performing employees it could be that unions inhibit higher compensation

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levels for these employees which creates less satisfied employees in terms of their overall pay satisfaction.

Besides pure theoretical explanations we can seek for additional reasons that might have resulted with the fact that union members show a higher level of pay satisfaction compared to non-union members, ceteris paribus. First, union members might show a higher level of overall job satisfaction since trough union representation they experienced collective involvement in decision making processes within a firm. Since pay satisfaction is a component of job satisfaction, these two might be related. Second, employees might have personal preferences over pay systems unions fight for (pay systems that promote equal pay for equal work, narrowing of the pay structure, disapproval of performance related pay). Third, personal and job characteristics of union members and non-members might have caused these findings. If only low-productive, lower educated or skilled employees join the union for the reason of union impact on compensation their overall satisfaction will be higher than for high-potential employees who could benefit from performance related pay systems.

The research findings are limited to a single large firm in Croatia, and as such do not satisfy methodological requirements to be generalized for all of Croatia. However, the research posits a good foundation for future research on this topic that will include a larger sample of Croatian firms.

7. Conclusions

This study contributes with its finding to the current literature on the relationship among unionisation and pay satisfaction. Current research results on the topic showed contradictory results. Our research results indicate that at a large firm in Croatia, unionised employees show a higher level of average pay satisfaction than non-unionised employees. Since collective labour agreement, as a result of spill over of collective bargaining effects, extends to all employees of the examined firm, reasons for this finding must be explored in this context. In other words the closing question could be formulated as: what brings unionised employees to have a better overall affect or feeling toward pay they receive? Besides looking for theoretical explanations founded in organisational justice, we added some possible practical explanations.

These research findings can be used by unions as they indicate the areas in which union members show dissatisfaction with union work (lowest rated areas of pay satisfaction). Non-union members’ responses can be also used as a reference point in determining the quality of union work. Additionally, our findings should be considered by human resource departments as well, as they indicate areas for potential improvement within compensation management.

References

Adams, J.S. (1963) Toward an Understanding of Inequity, Journal of Abnormal and Social Psychology, 67, p. 422-436

Armstrong, M. & Murlis, H. (2004) Reward Management: A Handbook of Remuneration Strategy and Practice, (5th edition), London: Kogan Page Limited.

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