In this article, the authors theoretically propose that the perceived fairness of merit pay substantially influences leader-member exchange (LMX) and which in turn influences job engagement. Data from 581 Chinese compulsory school teachers show that the perceived procedural fairness of merit pay policy significantly and positively affects LMX and job engagement. That LMX partially mediates the relationship between procedural fairness perception and job engagement. The results indicate that procedural fairness plays more important role to motivate the public service employees in the merit pay implementation than the distributive fairness. The emphasis of procedural fairness may reflect the respect and dignity of the individual, which therefore promote teachers’ acceptance of leadership management styles and further stimulate greater job engagement among employees.