Does horizontal pay dispersion impair firm performance? : the role of task complexity

Abstract

<div lang="en" class="abs"><p class="abs_header">Abstract</p><p>Using Finnish white-collar employee (WCE) compensation panel data, we study a moderating role of task complexity in the relation between WCE horizontal pay dispersion and firm performance. The key assumption underlying our research hypothesis is that due to the lack of appropriate performance measures, task complexity leads to greater subjectivity in the evaluations of employees’ performance and expertise. As a result of these forces, we expect the disincentive effect of horizontal pay dispersion to be more pronounced for WCEs involved in more complex tasks, thereby leading to deterioration in organizational performance. In the empirical analysis, we classify WCEs according to the complexity of tasks they perform into clerical, expert, senior expert, and managerial categories. We find that the negative relationship between WCE pay dispersion and firm performance is attributable primarily to the expert and senior expert WCEs, who are involved in complex knowledge-based tasks, supporting our hypothesis. </p></div>