When Turnover Strikes: The (Possible) Cost of Pay Dispersion

Topic: Compensation, Turnover
Publication: Journal of Applied Psychology (MAY 2011)
Article: Executive turnover: The influence of dispersion and other pay system characteristics
Authors: J. G. Messersmith, J. P. Guthrie, Y.-Y. Ji, & J.-Y. Lee
Reviewed By: Thaddeus Rada

It is probably not much of an exaggeration to say that being paid a fair wage or salary is one of the highest priorities of all employees in any organization. Therefore, it is not surprising that compensation is one of many factors in the workplace that can have an impact on employee turnover decisions. The current study, by Messersmith and colleagues, addresses how turnover at the highest level of an organization (the top management team, or TMT) might be impacted by pay dispersion (the size of the pay differences between different employees in the TMT).

 

Messersmith and colleagues used tournament theory as a guiding framework for their study. Tournament theory views organizations as competitive playing fields in which the goal of the “players” (the employees) is to move up in the organization in order to reap greater financial benefits. Among their hypotheses, the authors suggested that TMTs with greater pay dispersion (that is, larger pay differences between TMT members) would be more likely to experience turnover than organizations with less pay dispersion.

Messersmith and colleagues utilized archival research to address their hypotheses. Using existing data regarding publicly traded companies, in a variety of industries, the authors found support for their hypothesis that pay dispersion impacts individual turnover decisions. The authors also found that other characteristics of the pay structure and environment, such as market pay level and the “cut” of the total TMT pay that any one executive is receiving, impact turnover decisions.

Although it is unclear if the results of this study generalize to other organizational groups outside the TMT, the results of this study may be particularly useful to practitioners engaged in coaching or other work with members of the top levels of an organization. At the very least, having an awareness that pay structure and pay dispersion can have important impacts on executive turnover is valuable.

Messersmith, J. G., Guthrie, J. P., Ji, Y.-Y., & Lee, J.-Y. (2011). Executive turnover: The influence of pay dispersion and other pay system characteristics. Journal of Applied Psychology, 96, 457-469.

human resource management,organizational industrial psychology, organizational management