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

Abstract

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.

Rethinking Measurement of Pay Disparity and its Relation to Firm Performance

“…Without controlling for various determinants of CEO and employee compensation, when testing Tournament and Equity theories researchers fail to separate income inequity, which is the notion that these differences are unfair or perceived as such, from income inequality, or the difference in compensation between groups (Trevor et al 2012).…”

“…In interpreting pay disparity, researchers risk conflating income inequality -the difference in compensation between groups -and income inequity, or the notion that these differences are unfair or perceived as such (Trevor, Reilly, and Gerhart 2012).…”

Disparity in organizational research: How should we measure it?

“…Furthermore, although SD and RMD do not meet some properties of disparity and may not qualify as legitimate measures of disparity, using them to measure disparity is not uncommon in organizational research and other social science fields. Possibly, this is due to the facts that SD/RMD and CV/ Gini/Theil are very highly related (Shaw, 2014;Trevor et al, 2012) and that, in some studies, the relations between these different measures and outcomes either have not differed (Carnahan et al, 2012;Grund & Westergaard-Nielsen, 2008;Trevor et al, 2012) or have differed very little (Halevy, Chou, Galinsky, & Murnighan, 2012, p. 404).…”

“…Seven studies have used SD to assess either power disparity (Greer & van Kleef, 2010) or pay disparity (Canal Domínguez & Gutiérrez, 2004;Carnahan et al, 2012;Grund & Westergaard-Nielsen, 2008;Halevy et al, 2012;Mahy, Rycx, & Volral, 2011;Trevor et al, 2012). Much less common in this organizational literature is the use of the Theil or RMD measure; as Table 2 shows, these have been used in only two studies (He & Huang, 2011;Onaran, 1992).…”

“…RMD: Lin & Huang, 2011;.75 for CVand Gini: Shaw, Gupta, & Delery, 2002;.70-.74 for CV/Gini and SD: Trevor et al, 2012).…”