Pay Dispersion and Work Performance
AbstractThe 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 InfoPaper provided by Harvard Business School in its series Harvard Business School Working Papers with number 12-075.
Length: 48 pages
Date of creation: Feb 2012
Date of revision:
Team productivity; Incentives; Pay dispersion.;
Find related papers by JEL classification:
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
- J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-08 (All new papers)
- NEP-EFF-2012-03-08 (Efficiency & Productivity)
- NEP-HRM-2012-03-08 (Human Capital & Human Resource Management)
- NEP-LAB-2012-03-08 (Labour Economics)
- NEP-LMA-2012-03-08 (Labor Markets - Supply, Demand, & Wages)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- 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.
- 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.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Robin van Persie & the cost of inequality
by chris dillow in Stumbling and Mumbling on 2012-03-15 13:29:04
- 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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