Pay Premiums and Peer Spillovers: Unpacking the Value Proposition of Employing Stars as They Age

Abstract

An open question among scholars and practitioners is whether and when the employment of star employees is likely to pay off. Addressing this query, we integrate insights related to star performers’ experiences of cumulative advantage and disproportionate bargaining power with insights from the careers literature to develop theory related to stars’ direct and indirect value creation and value capture as they age. Specifically, we first develop arguments that stars, as a function of their disproportionate status and bargaining power, will enjoy higher pay relative to individual performance (PRIP) in comparison to their non-star peers. Second, we argue that this difference in PRIP will be greater among older employees, as stars’ cumulative advantage is a progressive phenomenon that continues to widen the initial gaps in their PRIP relative to others over their careers. Next, countering the apparent implication that the value proposition associated with employing stars deteriorates as stars age, we find that the magnitude of stars’ indirect contributions through positive spillovers to their peers’ performance increases with age. Lastly, we account for some of the mechanisms through which older stars have a more positive impact on their peers. General support for predictions is found in a financial services organization.