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Pay Dispersion and Work Performance

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Author Info

  • Alessandro Bucciol

    ()
    (University of Verona)

  • Marco Piovesan

    ()
    (Harvard Business School)

Abstract

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.

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Bibliographic Info

Paper provided by Harvard Business School in its series Harvard Business School Working Papers with number 12-075.

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Length: 48 pages
Date of creation: Feb 2012
Date of revision:
Handle: RePEc:hbs:wpaper:12-075

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Related research

Keywords: Team productivity; Incentives; Pay dispersion.;

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  1. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 98(6), pages 1307-24, December.
  2. David Berri & R. Jewell, 2004. "Wage inequality and firm performance: Professional basketball's natural experiment," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 32(2), pages 130-139, June.
  3. Hajime Katayama & Hudan Nuch, 2011. "A game-level analysis of salary dispersion and team performance in the national basketball association," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 43(10), pages 1193-1207.
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As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Robin van Persie & the cost of inequality
    by chris dillow in Stumbling and Mumbling on 2012-03-15 13:29:04
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Cited by:
  1. Takuma Kamada & Hajime Katayama, 2014. "Team performance and within-team salary disparity: an analysis of nippon professional baseball," Economics Bulletin, AccessEcon, vol. 34(1), pages 144-151.

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