more challenging since this pay data is often not publicly available. At the same time,
these studies are arguably more important because they broaden the focus beyond
the rareWed air of the executive suite to include those more directly responsible for
making products and/or delivering services.
Similar to Bloom ( 1999 ), Cowherd and Levine note that organizations are ‘both
economic exchange systems that produce goods and services and emotional hot-
beds fueled by continual social comparison’ ( 1992 : 305 ). These researchers argued
that inter-class pay dispersion may negatively aVect product quality through
detrimental eVects on employees’ discretionary eVort, cooperation, commitment,
or, more formally, organizational citizenship behavior (Organ 1990 ). Results were
consistent with these arguments.
Another study focusing on pay dispersion eVects among non-executives is Shaw
et al. ( 2002 ). TheyWrst make the point that intra-class wage dispersion (or hori-
zontal dispersion) likely has more powerful eVects on employee attitudes and
behavior than inter-class dispersion (vertical dispersion): ‘Horizontal pay distribu-
tions hold constant many potentially confounding factors (e.g., diVerences in
status, social class, job titles) that could reasonably explain variations in pay levels’
( 2002 : 509 ). Second, they argue that pay dispersion cannot be judged as helpful or
harmful to organizational eVectiveness in the abstract. One consideration is the
existence of individual pay-for-performance practices, which will strengthen
individual motivation and, importantly, legitimize pay diVerences. Results across
two samples largely support their arguments.
Shaw et al. also note that when authors make normative arguments for the
eVectiveness of pay compression, they do so by arguing that more egalitarian pay
structures will enhance cooperation and teamwork toward the completion of
interdependent tasks. This implies a contingency argument, wherein task interde-
pendency should moderate the performance impact of pay structure. In fact, one of
the original proponents of tournament theory has made similar arguments: ‘If
harmony is important, pay compression is optimal on strict eYciency grounds’
(Lazear 1989 : 579 ). Supporting this contingency argument, Shaw et al.Wnd that
performance is poorest when pay dispersion and work interdependence are both
high.
Another relevant study is PfeVer and Langton’s ( 1993 ) examination of the eVects
of pay dispersion on a sample of over 17 , 000 faculty from more than 600 US
academic departments. Their mainWnding was that wage dispersion within de-
partments is associated with lower satisfaction, productivity, and collaboration on
the part of individual faculty.^3 Similar to Shaw et al. ( 2002 ), PfeVer and Langton
report that the impact of pay dispersion on satisfaction is reduced in departments
where the dispersion is more ‘justiWed’ (i.e. more strongly correlated with experi-
ence, education, or productivity).
(^3) Gerhart and Rynes 2003 provide an interesting critique of this study.
remuneration: pay effects at work 353