The small relation between merit raise size and employee outcomes has puzzled merit pay researchers. We intend to investigate the small relation via the social comparison lens. We expect that employees will react differently to merit raises via positive and negative social comparisons based on individual self-esteem levels. The study used a three-wave longitudinal dataset from non-faculty employees of a large mid-west university in the US, collected across two merit raise cycles. The results suggest merit raise effects via social comparisons both early and later in the merit raise cycle and a more complex social comparison process than hypothesized. First, the overall extent of social comparison (both positive and negative) mediates the relationship between merit raise size and pay attitude only for individuals with average self-esteem and turnover intentions for those with average or low self-esteem. Second, the indirect relationship between merit raise sizes and employee outcomes through social comparisons is more influenced by positive comparisons for individuals with high self-esteem and by negative comparisons for those with low self-esteem.
