Quantitative Analyses Of Management Salary Differentials

This paper reviews the practical value of a number of quantitative models of management pay structures at the level of the firm. The aim is to identify the practical, operational value of these models to salary administrators. Models developed in the last twenty years by Roberts (1956), Peason (1967), Simon (1957), Lydall (1959), Thorelli (1965) and Paterson (1972) are reviewed and their practical weaknesses highlighted. It is concluded that models of this nature are of considerable conceptual value in relating some of the economic and organizational factors involved in management pay. Most quantitative models appear to have mainly academic value. However, the paper demonstrates how an approach using a mixed Pearson and Paterson model can be applied in a practical fashion to yield useful salary administration guidelines. The Pearson model is based on a Pareto distribution of managerial salaries within the firm, while Paterson's model provides definitions of authority levels associated with management jobs. The combined Pearson/Paterson approach provides the administrator with a helpful framework which allows comparison of his firm's salary structure with those of companies in similar industries as well as measurement of changes within his salary structure over a selected time period.