® Academy of Management Journal 1999, Vol. 42, No. 1, 25-40.
THE PERFORMANCE EFFECTS OF PAY DISPERSION ON INDIVIDUALS AND ORGANIZATIONS
MATT BLOOM University of Notre Dame Pay distribution research is relatively scarce in the compensation literature, yet pay distributions are viewed as critically important by organizational decision makers. This study is a direct test of the relationship between one form of pay distribution—pay dispersion—and performance conducted in a field setting where
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Recent interest in high-performance work systems (Kochan & Osterman, 1994; Pfeffer, 1994) and concerns ahout the allocation of pay in companies (Bok, 1993; Frank & Cook, 1997) have added emotion and ideology to the debate, yet empirical research is just beginning to inform the controversy (Becker & Huselid, 1992; Ehrenherg & Bognanno, 1990; Pfeffer & Langton, 1993). Although it has contributed substantially to the compensation literature, most existing research
has heen limited to situations in which performance occurs over a very short period of time and is primarily dependent upon a single individual (Becker & Huselid, 1992; Ehrenherg & Bognanno, 1990) or a very small group of individuals (Pfeffer & Langton, 1993). Furthermore, published research is virtually silent ahout the relationships hetween pay distributions and organizational performance. Since compensation policy makers ultimately design pay distrihutions to influence organizational success, this is an important area for empirical research. This study was a direct test of the pay distribution-performance relationship in a field setting where individual and organizational performance were ohservahle and could be reliahly measured over an extended period of time. CONCEPTUAL FOUNDATIONS OF PAY DISTRIBUTION MODELS In this study,