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In this paper, we review the literature on pay variation (e.g., pay dispersion, pay compression, pay range) in organizations. Pay variation research has increased markedly in the past two decades and much progress has been made in terms of understanding its consequences for individual, team, and organizational outcomes. Our review of this research exposes several levels-related assumptions that have limited theoretical and empirical progress. We isolate the issues that deserve attention, develop an illustrative multilevel model, and offer a number of testable propositions to guide future research on pay structures.

Relatively little research has examined whether pay dispersion influences men's and women's earnings differently. The purpose of this paper is to fill this research gap.

The authors used survey design and multiple regressions to analyze a sample of 650 Swedish medical doctors.

Pay dispersion was found to be negatively associated with both men's and women's earnings. These effects were contingent on compensation informality and the individual's position in the pay structure. Specifically, when pay dispersion was high, high compensation informality resulted in women being paid less. The interaction of pay dispersion and compensation informality was unrelated to men's earnings. Also, women who were paid less suffered larger penalties when pay dispersion was higher, but their female counterparts who were paid more gained from the existence of greater pay dispersion.

Examining the structure of labor markets on individual outcomes is increasing in importance due to the boundaryless nature of contemporary careers. As people cross functional, organizational, industrial, and even occupational boundaries more frequently in their career lifetimes, they are increasingly exposed to the structural effects of external labor markets. As such, the effects of factors such as pay dispersion and compensation informality in the market are becoming increasingly significant to the fortunes of women and men facing those conditions.

The purpose of this paper is to answer the question: What happens to the outcomes of pay dispersion when the employees own stock in their own company?

The data set consisted of over 20,000 employee surveys. Pay dispersion was measured with the Gini coefficient. The outcome variables were attitudes and behaviors with numerous controls. The moderation effect of employee ownership was investigated at the individual and group level using multilevel regression analysis.

Most hypothesized outcomes did not yield statistically significant results. The results that were statistically significant had two patterns: first, higher pay dispersion was consistently associated with improved attitudes and behaviors; and second, employee ownership moderated the outcomes of pay dispersion for certain outcomes and job types (e.g. perceptions of company fairness among administrative support personnel, or absenteeism and production personnel). There was no evidence to support a link between pay dispersion and attitudes across job types (vertical), only within job types (horizontal).

All the data were self-reported in surveys. Attitudes were measured with single items rather than validated scales. The data were cross-sectional, so no causality can be inferred.

While both higher pay dispersion and employee ownership can motivate employees, the interaction between them can be negative, especially in a cooperative environment. Consideration should be given to this when designing compensation packages.

There was a surprisingly strong link between higher pay differentials and improved attitudes, suggesting that the opportunity for higher pay is more influential than any feelings of inequity.

The effect of employee ownership on the outcomes of pay dispersion has never been investigated. This should be valuable given how widely higher pay is used to attract, retain and motivate employees (leading to pay dispersion) as well as how increasingly popular employee ownership is becoming.

Explained pay dispersion theory (Shaw, Gupta, & Delery, 2002) contends that the consequences of pay dispersion depend on two critical contingencies: (1) the presence of legitimate or normatively acceptable dispersion-creating practices, and the (2) identifiability of individual contributions. In this chapter, the first 20 years of empirical evidence and theoretical offshoots of this theory are reviewed. Other recent studies on the outcomes of horizontal and vertical pay dispersion are also evaluated. The review concludes with an evaluative summary of the literature and the identification of several potential fruitful areas for future research.

This study examines the performance consequences of pay dispersion in publicly listed firms in Turkey for the period 2009–2013. Our study focuses on vertical pay dispersion, which reflects intra-firm and vertical differences between pay at two important hierarchical levels: top executive level and lower hierarchical level. The author intends to present arguments based on equity theory and tournament theory and will propose two contradictory hypotheses to test them within the context of an emerging market. Results provided in the present study confirm that pay dispersion between executives and employees has a positive impact on a firm’s profitability in Turkey. Our study contributes current empirical evidence by examining vertical pay dispersion in an emerging country context, which may have a different cultural orientation and societal-wide assumptions concerning fairness, power, and disparities, relative to its developed country counterparts.

Integrating the resource-based view (RBV) with pay dispersion research, the authors examine how the allocation of resources between hiring new employees and compensating current employees, as well as the allocation of resources among new employees, affects organizational performance.

The authors use panel data on Major League Baseball teams. The authors also use system generalized method of moments (GMM) estimations to control for the impact of past performance on current performance, unobserved individual heterogeneity and omitted variable bias.

The authors find that the larger the portion of the human resources (HR) budget allocated to hiring new employees, the poorer organizational performance becomes unless the focal organization has already significantly underperformed. The authors also find that pay concentration among new employees has a positive impact on organizational performance unless the focal organization has already significantly overperformed.

This study extends RBV research by examining how resource allocation patterns affect organizational performance, which has rarely been studied. Moreover, by showing the organizational context's significant effect on the outcome of financial allocation for resource acquisition, this study extends both the RBV research and the pay dispersion research.

This study aims to re-examine the impact of economic policy uncertainty (EPU) on firm innovation. Studies on how EPU affects firm innovation have been inconclusive. The authors clarified the curvilinear relationship between EPU and firm innovation and examined the moderating effects of managerial pay gaps, specifically vertical pay disparity and horizontal pay dispersion.

This study’s analyses used data collected from Chinese listed companies from 2007 to 2019.

The authors found an inverted U-shaped relationship between EPU and firm innovation. Furthermore, vertical pay disparity strengthens the curvilinear relationship, while horizontal pay dispersion weakens it.

First, politicians should avoid adjusting economic policies too frequently because the high EPU levels created by frequent adjustments can inhibit business innovation. Second, firms should be aware that EPU creates opportunities for leapfrogging. In particular, firms can incentivize executives to take advantage of the valuable growth opportunities presented by EPU by widening vertical pay disparities and avoiding excessive horizontal pay dispersion.

First, the authors analyze not only the positive effects of lower EPU on firm innovation but also the negative impacts of higher EPU to examine EPU’s “double-edged sword” effect on firm innovation. Second, the investigation of vertical pay disparity and horizontal pay dispersion as moderating variables sheds new light on the equivocal research findings regarding the EPU–firm innovation relationship and clarifies the boundary conditions of the double-edged sword effect of EPU on firm innovation.

This paper aims to evaluate the effects of both salary dispersion and incentive pay on team performance using data complied from the National Football League over the years 2000‐2007.

The authors consider the effect of pay structure on both in terms of on‐field and financial performance. Salary disparity and its subsequent consequences has been a topic of economic research on corporate pay structure and also professional team sport organizations. Analysis of pay structures incorporating the effects of incentive pay on performance is also recurrent in the literature. The paper uses regression analysis and incorporates both fixed and random effects models.

A relationship between improved on‐field performance and increased payroll, lower levels of salary dispersion, and increased incentive payments is found. However, when employing team revenue production as the measure of performance, a positive relationship with salary dispersion is found.

The findings are of particular interest because a conflict of objectives is seen. When financial incentives are primary, hierarchical pay structure is optimal. It is shown that more compressed pay structures improve on‐field performance.

This study is unique in addressing how salary dispersion in combination with incentive pay correlates to team success as measured by both winning and revenue production. While the authors used the NFL as the organization of interest, this type of analysis could be applied to other professional sport leagues incorporating some type of salary cap. In addition, future research could also involve a mixed methods approach to help gain an additional understanding of the decision making of those in managerial positions of influence within sport and non‐sport organizations.

The study is unique in that most previous empirical work analyzing payroll structure in sport organizations does not consider disparity in conjunction alternative methods of improving performance through structure of compensation.

Wage disparities and their consequences have long been a topic of economic research. While most papers focus on describing the development of wage differentials over time and seek to identify the reasons for the observed patterns, few attempts have been made to analyze the influence of pay inequality on economic outcomes. A unique and rather large data set from the North American team sports industry is used to address the question how wage disparities affect the performance of professional teams. First, changes in intra‐ and inter‐team wage inequality are documented. Second, the impact of wage inequality on team performance is directly analyzed. Overall, the results differ to a considerable degree between the four major leagues, suggesting that the relative importance of high‐powered incentives and cooperation is different in football and hockey from basketball and baseball.

This paper extends the current understanding of the retrenchment-–turnaround relationship in declined companies by introducing a compensation gap view. It argues that the effectiveness of the retrenchment strategy is contingent on reducing the executive-employee compensation gap in the turnaround process.

Drawing from a two-stage turnaround model and insights from the literature on executive-employee compensation gap, we develop and test a theoretical model that explains how five attributes, which refer to executive-employee compensation gap, asset retrenchment, cost retrenchment, ownership and size, affect the outcome of the organizational turnaround. This paper uses the fuzzy-set qualitative comparative analysis (fsQCA) method and based on the samples of 112 listed companies that experience the decline between 2005 and 2013.

This paper concludes two valid causal paths and finds that small companies with small executive-employee compensation gap have a higher likelihood of successful turnaround when they implement cost or asset retrenchment actions. As for large state-owned companies, they should reduce the costs and maintain a small executive-employee compensation gap. An excessive compensation gap can be problematic, which could impair the organizational ability to cope with adversity and decline.

First, this paper taps the vital role of employees in the turnaround process besides the mainstream “organizational decline-layoffs” logic, which hints a new human resource management strategy when organizations are facing decline. Second, this paper reveals the theoretical linkage between pay dispersion, internal stakeholder and organizational resilience. Third, as a methodological contribution, we introduce fsQCA, overcoming the shortcomings of turnaround strategy research with case and regression analysis and breaking through the paradigm of “specific factor-turnaround.”

Organizational turnaround is a systematic process that constitutes multiple factors together. When organizations take the asset retrenchment to stop bleeding, reducing the executive-employee compensation gap will help enhance employee's cognition of organizational values and strategic goals, eliminate feelings of exploitation in retrenchment implementation and thus effectively promote turnaround. This paper also provides a basis for executive compensation restrictions and re-examines pay dispersion and economic inequality.

This study sheds some light on the importance of the executive-employee compensation gap in retrenchment strategy and contributes to both organizational turnaround and pay dispersion theories. Also, it reveals the theoretical linkage between internal stakeholders, organizational resilience and long-term orientation.