Pay Transparency, Procedural Justice, and Employee Performance: The Moderating Role of Supervisor Trust

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FORMOSA NEWS

Pay Transparency and Supervisor Trust Drive Employee Performance, Study Finds

JAKARTA, FORMOSA NEWS — Disclosing how employee compensation is determined significantly boosts job performance by building a strong sense of procedural fairness in the workplace. A comprehensive study conducted by researchers at Universitas Halu Oleo in 2026 demonstrates that the positive effect of pay transparency on employee performance becomes substantially stronger when workers maintain high levels of trust in their supervisors. Published in June 2026 in the International Journal of Contemporary Sciences, the findings provide practical guidance for corporate leaders and human resource practitioners navigating modern compensation policies.

The research was carried out by a team of scholars from the Doctoral Program in Management at Universitas Halu Oleo, comprising Nurwati, Arsyat, Hartini Yuliati, Amaliyana Tendriawaru Anas, and Ryan Pratama Mandala Putra. Their study addresses a critical global momentum toward corporate openness, driven by mandates such as the European Union’s Pay Transparency Directive and similar statutes in the United States. In Indonesia, where corporate structures often feature high power distance, understanding how pay communication impacts workforce productivity is vital for organizational growth and stability.

The Urgency of Pay Transparency in the Modern Service Sector

Modern organizations face growing pressure from regulators, job seekers, and current employees to eliminate secretive compensation practices. For decades, workplace pay remained an unspoken subject, frequently fostering employee suspicion, perceived favoritism, and reduced organizational commitment. When workers lack clear information regarding how salary levels, annual raises, and bonuses are decided, they often assume that managerial decisions are arbitrary or unfair.

This lack of clarity directly affects employee motivation, trust, and overall output. Without clear insights into compensation criteria, formulas, and evaluation procedures, organizations struggle to build a high-performance culture. Evaluating the exact psychological mechanisms linking process pay transparency—openness about decision-making rules rather than disclosing exact individual salaries—to actual employee performance is essential for modern business strategy.

Simplified Research Methodology

To investigate these organizational dynamics, the research team at Universitas Halu Oleo utilized a quantitative descriptive research design based on a cross-sectional survey. The study sampled 117 permanent employees working across the Greater Jakarta metropolitan area (Jabodetabek) within four major service industries:

• Banking and Finance
• Telecommunications
• Modern Retail
• Professional Consulting

All participating employees had at least 12 months of organizational tenure and worked directly under an assigned supervisor. The researchers evaluated the data using Partial Least Squares Structural Equation Modeling (PLS-SEM) combined with 5,000-subsample bootstrapping in SmartPLS. Additionally, they conducted an index-based test of moderated mediation to determine whether supervisor trust amplifies or weakens the indirect path from pay transparency to employee performance.

Key Findings of the Study

The empirical results confirm that pay transparency and supervisor trust operate as powerful, complementary drivers of workforce effectiveness:

• Direct Boost to Procedural Justice ($\beta = 0.483, p < .001$): Clear communication regarding salary criteria and formulas significantly enhances employee perceptions that organizational procedures are fair, consistent, and unbiased.
• Procedural Justice Drives Performance ($\beta = 0.521, p < .001$): Employees who believe that organizational processes are fair exhibit significantly higher task and contextual job performance.
• Essential Mediating Mechanism (Indirect Effect $= 0.252$): Pay transparency does not directly alter performance; instead, it works almost entirely through procedural justice perceptions as a psychological bridge.
• Supervisor Trust Acts as an Amplifier ($\beta = 0.287, p < .001$): High supervisor trust substantially reinforces the positive effect of pay transparency on procedural justice ($\beta = 0.682$ under high trust versus $\beta = 0.284$ under low trust).

Real-World Impact and Organizational Implications

The insights generated by Universitas Halu Oleo offer actionable strategies for corporate managers, HR professionals, and policymakers. Organizations should transition from informal pay discussions toward systematic, open disclosures of compensation criteria, formula components, and performance review mechanisms. Clearly explaining the fairness behind reward decisions ensures that employees process compensation policies positively.

Furthermore, low supervisor trust should never serve as an excuse for management to withhold pay transparency. Instead, transparently communicating structured, bias-free procedures acts over time as an effective mechanism for building and restoring employee trust in leadership.

"Pay transparency and supervisor trust are complementary levers in driving organizational success," stated lead researcher Dr. Nurwati and her colleagues at Universitas Halu Oleo. "Open compensation processes foster perceptions of procedural fairness, and when paired with high supervisor trust, the positive impact on employee performance is maximized."

Author Profile

• Full Name: Dr. Nurwati, S.E., M.Si.
• Affiliation: Doctoral Program in Management, Faculty of Economics and Business, Universitas Halu Oleo, Kendari, Indonesia
• Expertise: Human Resource Management, Organizational Behavior, and Compensation Systems

Official Research Source

• Article Title: Pay Transparency, Procedural Justice, and Employee Performance: The Moderating Role of Supervisor Trust
• Authors: Nurwati, Arsyat, Hartini Yuliati, Amaliyana Tendriawaru Anas, and Ryan Pratama Mandala Putra
• Journal: International Journal of Contemporary Sciences (IJCS), Vol. 4, No. 6, 2026, pp. 1785–1802
• DOI: https://doi.org/10.55927/qsabfd72
• Link: https://journalijcs.my.id/index.php/ijcs