Purpose: This study was conducted to examine the effect of pay for performance and interactional justice on job satisfaction.

Design/methodology/approach: A survey method was used to collect 107 usable questionnaires from employees who work in the US subsidiary manufacturing firm operating in a silicon valley in East Malaysia, Malaysia.

Findings: The outcomes showed two important findings: first, relationship between interactional justice and adequacy of pay significantly correlated with job satisfaction. Second, relationship between interactional justice and participation in pay systems significantly correlated with job satisfaction. Statistically, this result confirms that interactional justice does act as a mediating variable in the pay for performance models of the studied organization.

Originality/value: Most previous research tested a direct effect of pay for performance on job satisfaction. Unlike such research approach, this study discovers that interactional justice has strengthened the effect of pay for performance on job satisfaction in a compensation system framework.