Heterogeneity in turnover: the effect of relative compensation dispersion of firms on the mobility and entrepreneurship of extreme performers

We explore the strategic implications of firm compensation dispersion on the heterogeneous turnover outcomes of employee mobility and entrepreneurship. We theorize that individuals' turnover decisions are affected by the interaction of individual performance with the firm's compensation dispersion relative to its competitors. We test our theory using linked employer‐employee data from the legal services industry. We find that individuals with extreme high performance are less likely to leave firms that offer higher compensation dispersion than competitors, however, if they do leave these employers, they are more likely to create new ventures. In contrast, employees with extreme low performance are more likely to leave firms with more compensation dispersion than competitors, and these individuals are less likely to engage in new venture creation. Copyright © 2012 John Wiley & Sons, Ltd.