FOI Seminar 10 February 2012

Marco Piovesan
(Harvard Business School):

 

Pay Dispersion and Work Performance

(with Alessandro Bucciol)

(Contact: ) 

 

Friday 10 February 2012, 12.30-12.30, Building A, first floor (the B.S. Jørgensen seminar room)

Abstract:

The effect of pay dispersion on team performance is controversial: it may either provide an extra incentive for employees’ effort or reduce team cohesiveness and cooperation. Both the theoretical results and empirical evidences are mixed and they do not distinguish between workers that actually contribute to the team performance and workers that do not. In contrast, we collect a unique dataset with 666 matches played during last two seasons of the Italian major soccer championship. For each match we are able to measure team pay dispersion but considering only players that actually played and the minutes they actually played. Our results show that pay dispersion has a (net) detrimental impact on team performance: doubling pay dispersion decreases the probability of winning by at least 6%. This result is consistent to several robustness checks. Moreover, we show that this negative effect of pay dispersion is mainly due to worst individual performances and not to lack of cooperation between players. This finding warns managers on the (hidden) and negative effect of pay dispersion.

Keywords: Team productivity, Incentives, Pay dispersion.
JEL codes: J31, J33, J44