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Pay Dispersion and Work Performance

Author

Listed:
  • 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.

Suggested Citation

  • Alessandro Bucciol & Marco Piovesan, 2012. "Pay Dispersion and Work Performance," Harvard Business School Working Papers 12-075, Harvard Business School.
  • Handle: RePEc:hbs:wpaper:12-075
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    File URL: http://www.hbs.edu/research/pdf/12-075.pdf
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    References listed on IDEAS

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    1. DepkenII, Craig A., 2000. "Wage disparity and team productivity: evidence from major league baseball," Economics Letters, Elsevier, vol. 67(1), pages 87-92, April.
    2. 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, vol. 43(10), pages 1193-1207.
    3. Ehrenberg, Ronald G & Bognanno, Michael L, 1990. "Do Tournaments Have Incentive Effects?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1307-1324, December.
    4. David Berri & R. Jewell, 2004. "Wage inequality and firm performance: Professional basketball's natural experiment," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 32(2), pages 130-139, June.
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    Blog mentions

    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 18:29:04
    2. The Cold War isn't over
      by chris dillow in Stumbling and Mumbling on 2014-11-08 19:46:41
    3. Inequality & productivity
      by chris in Stumbling and Mumbling on 2014-12-09 20:48:38

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    Cited by:

    1. repec:spr:epolit:v:34:y:2017:i:3:d:10.1007_s40888-017-0062-6 is not listed on IDEAS
    2. Raul Caruso & Marco Di Domizio & Domenico Rossignoli, 2017. "Aggregate wages of players and performance in Italian Serie A," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 34(3), pages 515-531, December.
    3. 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.
    4. Caruso, Raul & Carlo, Bellavite Pellegrini & Marco, Di Domizio, 2016. "Does diversity in the payroll affect soccer teams’ performance? Evidence from the Italian Serie A," MPRA Paper 75644, University Library of Munich, Germany.

    More about this item

    Keywords

    Team productivity; Incentives; Pay dispersion.;

    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

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