Is a high pay disparity harmful to productivity? Findings from the restaurant industry

Abstract

This study examined the effect of CEO-employee (executive) pay disparity on restaurant productivity and how restaurant type and franchising moderate the pay disparity-productivity relationship. Based on the notion that tournament theory and equity theory are complementary, this study hypothesized that CEO-employee (executive) pay disparity has a nonlinear effect on restaurant productivity. Furthermore, this study further hypothesized that restaurant type and franchising moderate the relationship between pay disparity and restaurant productivity. The results of this study confirmed that CEO-employee (executive) pay disparity has an inverted U-shaped (U-shaped) relationship with restaurant productivity. This study also found that franchising (restaurant type) significantly moderates the relationship between CEO-employee (executive) pay disparity and restaurant productivity. The results suggest that CEO-employee (executive) pay disparity has an inverted U-shaped (U-shaped) influence on restaurant productivity with a minima (maxima) of 500 (3.75) times. More detailed results and implications are discussed in this paper.