Pay Dispersion Research Articles

Pay dispersion and organizational innovation: The mediation effects of employee participation and voluntary turnover

Building on social comparison theory, we posit that a firm’s pay dispersion affects its innovation through employee participation and voluntary turnover. By analyzing data collected at both employee and organizational levels from 1419 firms, we found that pay dispersion had an inverted U-shaped effect on employee participation, which in turn enhanced innovation. Pay dispersion had a positive effect on voluntary turnover, which in turn impaired innovation. These findings contribute to research on economic inequity by revealing the mediation mechanisms of employee participation and voluntary turnover in the relationship between pay dispersion and organizational innovation.

What’s in a Paycheck: Exploring Employee Responses to Compensation Plans

Compensation is a central part of the employee experience. Nevertheless, many aspects of the effects of different compensation schemes on employee outcomes are not fully understood. For example, should pay be kept secret? Should pay be widely dispersed? How do employees spend their salaries? This symposium will attempt to answer these and other important questions related to employee compensation. The symposium proceeds as follows. First, Park examines the effects of pay secrecy, and how these effects are moderated by pay dispersion. Next, King and Knippen examine NCAA coaching salary data to explore the relationship between executive compensation and player level performance outcomes. After that, Schulz and Fay present validation efforts on a proprietary compensation data set. Then, Cui discusses the relationship between pay dispersion and exploratory innovation. Finally, Tuckfield and Beshears analyze individual transactions to test the marginal propensity to consume an employer bonus. Pay Secrecy in a Pay Dispersion Context Presenter: Tae-Youn Park; Vanderbilt U. Validation Efforts of a Proprietary Compensation Data Set Presenter: Eric Schulz; Eastern Michigan U. Presenter: Charles H. Fay; Rutgers U. The Impact of Pay Dispersion on Exploratory Innovation Presenter: Victor Cui; U. of Manitoba Compensation of NCAA Coaches Presenter: Adelaide Wilcox King; U. of Virginia Presenter: Jennifer Miner Knippen; U. of Virginia The Marginal Propensity to Consume a Bonus Presenter: Bradford Tuckfield; The Wharton School, U. of Pennsylvania Presenter: John Beshears; Stanford U.

A Multiple Social Comparisons Analysis of Performance Feedback and Pay Dispersion on Diversification

Firm performance can be assessed relative to prior historical or social performance. However, social performance feedback has been theoretically underdeveloped among these two measures. Building on...

Contingent Effects of Pay Dispersion on Employee Attitudes

When does pay dispersion elicit positive employee attitudes and when not? A recent review of the pay dispersion literature indicates a dearth of research on this vital issue and the likelihood that...

Founder Versus Family Owners’ Impact on Pay Dispersion Among Non-CEO Top Managers: Implications for Firm Performance

Emerging evidence suggests that pay dispersion among non-CEO top management team (TMT) members harms firm performance, which raises questions about why firms’ owners tolerate or even support it. Prior research shows that the key distinction between founder and family owners is that in addition to firm performance and growth goals, family owners pursue socioemotional goals. On the basis of this distinction, we develop and test theory linking founders’ and families’ ownership to TMT pay dispersion. Consistent with our theory, a Bayesian panel analysis of Standard & Poor’s 500 firms shows that founder owners use less TMT pay dispersion and that family owners, relative to founder owners, use more, although that declines across generations. We also provide evidence that TMT pay dispersion harms firm performance. Our theory and results are significant because they help to explain why some owners favor compensation practices that cause TMT pay dispersion, despite evidence that this harms firm performance.

Pay dispersion and performance in teams.

Extant research offers conflicting predictions about the effect of pay dispersion on team performance. We collected a unique dataset from the Italian soccer league to study the effect of intra-firm pay dispersion on team performance, under different definitions of what constitutes a “team”. This peculiarity of our dataset can explain the conflicting evidence. Indeed, we also find positive, null, and negative effects of pay dispersion on team performance, using the same data but different definitions of team. Our results show that when the team is considered to consist of only the members who directly contribute to the outcome, high pay dispersion has a detrimental impact on team performance. Enlarging the definition of the team causes this effect to disappear or even change direction. Finally, we find that the detrimental effect of pay dispersion is due to worse individual performance, rather than a reduction of team cooperation.

The Effects of Abnormal Executive Pay Dispersion: Evidence from Firm Performance and Executive Turnover

AbstractThis study examines the relation between pay dispersion among top executives and firm performance and executive turnover. I find that deviations from normal dispersion are associated with deterioration in firm performance and higher executive turnover. I also document that a positive relation between abnormal pay dispersion and executive turnover is driven by low‐ranked executives. This study contributes to the existing literature by suggesting that abnormal pay dispersion is an important factor that influences managerial behavior in addition to raw pay dispersion.

Pay Dispersion

This article describes and evaluates the substantial literature on the performance-, turnover-, and attitude-related outcomes of pay dispersion. In the past 15 years, compensation researchers have identified and pursued the resolution of well-known theoretical dilemmas about reward allocations and, as a result, have made much progress in terms of understanding the consequences of pay structures. This review explores the evolution of several contingencies of these relationships, including the effects of explained versus unexplained variation in pay, the role of work interdependence, and the nature of other pay-system characteristics. The article concludes with a summary evaluation, the proposal of several stylized facts about the consequences of pay dispersion, and a research agenda to aid researchers in addressing unresolved issues in the literature.

Pay Dispersion and Team Performance in Professional Sports: Does Task Interdependence Matter?

We developed two studies in order to understand the relationship between pay dispersion and team performance. In Study 1, we examined the relationship between pay dispersion and team performance by using publicly available databases containing pay-related data and team-performance data. Results showed that there is a positive relationship between pay dispersion and team performance for the National Basketball Association (NBA), a negative relationship for Major League Baseball (MLB), and no significant relationship for the National football League (NFL). Furthermore, we found an inversed U-shaped relationship for the NBA. In Study 2, we addressed whether task interdependence exists across professional sports. Unlike what we expected regarding the role of task interdependence (i.e., reciprocal task interdependence), we argue that factors such as a salary cap, cooperative hierarchy, and reliance upon key players could be critical factors for determining the effectiveness of pay dispersion. Both theoretical and practical implications are discussed.

Does CEO Pay Dispersion Matter in an Emerging Market? Evidence from China's Listed Firms

This paper examines how the institutional features of emerging economies (i.e., government ownership, political connections, and market reform) influence CEO pay-dispersion incentives. Consistent with our expectation, we find that CEO pay dispersion generally provides a tournament incentive in China’s emerging market, as it is positively associated with firm performance. In addition, tournament incentives are weaker where firms are controlled by the government and where the CEO is politically connected, but it became stronger after the China's split-share structure reforms. Further, we find that in state controlled firms the satisfaction gained by meeting multiple economic and social goals largely reduces the effectiveness of tournament incentives, while the managerial agency problems inherent in private firms might mitigate them.

Employee reactions to pay dispersion: A typology of existing research

Pay dispersion has received growing attention in the management literature. Despite an increasing number of studies, research evidence on the effects of pay dispersion has not yet been consistent. The purpose of this paper is to review existing work and to provide a comprehensive theoretical framework that can advance pay dispersion research. Specifically, our framework suggests four unique types of pay dispersion and discusses three existing theories (equity theory, expectancy theory, and tournament theory) to integrate existing research from an employee reaction perspective in the pay dispersion area. We build upon this taxonomy and theoretical explication to suggest an agenda for future pay dispersion research.

When What You Want is What You Get: Pay Dispersion and Communal Sharing Preference

The question of whether pay structures should be compressed or dispersed remains unanswered. We argue that pay dispersion can yield uncertainty regarding others' intentions and behaviors; as a result, individuals take a greater risk trusting their group members as pay spreads widen. Accordingly, we explore the conditions under which individuals are more willing to take this risk by viewing their group members as trustworthy even when pay is dispersed. Specifically, preferences for how relationships and resources should be structured in groups should help to determine when pay dispersion relates to trustworthiness perceptions. We hypothesise that the cross-level interaction between preferences for communal sharing (Level 1)—that is, the extent to which individuals prefer communal, egalitarian structures in their groups—and pay dispersion (Level 2) is associated with trust perceptions. Data drawn from a sample of university professors support our hypothesised cross-level interaction, and show that when pay dispersion is greater, individuals perceive their group members as more trustworthy only when they have weak preferences for communal sharing. Our results signify the importance of individual attributes to understanding pay dispersion's effects, and show that trust is fostered when preferences and pay conditions are aligned.

The Effects of Vertical Pay Dispersion: Experimental Evidence in a Budget Setting

The Effects of Vertical Pay Dispersion: Experimental Evidence in a Budget Setting

The Effects of Vertical Pay Dispersion: Experimental Evidence in a Budget Setting

The Effects of Vertical Pay Dispersion: Experimental Evidence in a Budget Setting

Antecedents and Consequences of Executive Pay Dispersion in the U.S. Banking Industry

There has been an increasing debate on the issue of pay inequality due to the recent financial crisis. Over the last few decades, the issues of executive pay dispersion and its performance implication have been a key research topic. However, previous studies have paid little attention to the role of compensation committee regarding executive pay dispersion. Social comparison theory and institutional theory suggest that committee members on corporate board show mimetic behaviors when making decisions on executive pay structure. Specifically, we propose that compensation committees are likely to create similar level of pay dispersion for focal firm (i.e. where committee member as serve directors) that mirrors the pay dispersion of tied firm (i.e. where committee member serve as managers). We also propose that the executive pay dispersion before financial crisis had negative performance implications. Using a sample of U.S. banks, we found that the pay dispersion level of tied firms is positively associated w...

The Effects of the Top Management Team's Pay Dispersion and Member Diversity on Performance Feedback

In this research, we investigate how the pay dispersion and member composition of the top management team (TMT) moderate a firm's performance feedback. In particular, based on March's multiple deci...

Unraveling the Relationship of Pay Dispersion and Turnover Intention Among White-Collar Employees

Integrating ideas of a set of theories from both economic and behavioral perspectives, in this study, we conceptualized a mediation model and a moderation one unraveling the relationship between de...

Pay dispersion and earnings for women and men: a study of Swedish doctors

PurposeRelatively little research has examined whether pay dispersion influences men's and women's earnings differently. The purpose of this paper is to fill this research gap.Design/methodology/approachThe authors used survey design and multiple regressions to analyze a sample of 650 Swedish medical doctors.FindingsPay dispersion was found to be negatively associated with both men's and women's earnings. These effects were contingent on compensation informality and the individual's position in the pay structure. Specifically, when pay dispersion was high, high compensation informality resulted in women being paid less. The interaction of pay dispersion and compensation informality was unrelated to men's earnings. Also, women who were paid less suffered larger penalties when pay dispersion was higher, but their female counterparts who were paid more gained from the existence of greater pay dispersion.Originality/valueExamining the structure of labor markets on individual outcomes is increasing in importance due to the boundaryless nature of contemporary careers. As people cross functional, organizational, industrial, and even occupational boundaries more frequently in their career lifetimes, they are increasingly exposed to the structural effects of external labor markets. As such, the effects of factors such as pay dispersion and compensation informality in the market are becoming increasingly significant to the fortunes of women and men facing those conditions.

Reconsidering Pay Dispersion's Effect on the Performance of Interdependent Work: Reconciling Sorting and Pay Inequality

Pay dispersion in interdependent work settings is virtually universally argued to be detrimental to performance. We contend, however, that these arguments often confound inequality with inequity, thereby overestimating inequity concerns. Consequently, we adopt a sorting (attraction and retention) perspective to differentiate between pay dispersion that is used to secure valued employee inputs and pay dispersion that is not so used. We find that the former is positively related to interdependent team performance, the latter has no effect or is detrimental, and the approach itself helps to reconcile the pay dispersion literature's disparate results. Curvilinearity tests reveal potential constraints on the sorting argument.

Pay Dispersion and Work Performance

The effect of intra-firm pay dispersion on work performance is controversial and the empirical evidence is mixed. High pay dispersion may act as an extra incentive for employees’ effort or it may reduce motivation and team cohesiveness. These effects can also coexist and the prevalence of one effect over the other may depend on the use of different definitions of what constitutes a “team.” For this paper we collected a unique dataset from the men’s major soccer league in Italy. For each match we computed the exact pay dispersion of each work team and estimated its effect on team performance. Our results show that when the work team is considered to consist of only the players who contribute to the result, high pay dispersion has a detrimental impact on team performance. Several robustness checks confirm this result. In addition, we show that enlarging the definition of work team causes this effect to disappear or even become positive. Finally, we find that the detrimental effect of pay dispersion is due to worst individual performance, rather than a reduction of team cooperation.