Moderating effect of pay dispersion on the relationship between employee share ownership and labor productivity

• Published date: 01 September 2018
• Date: 01 September 2018
• DOI: http://doi.org/10.1002/hrm.21899

ORIGINAL ARTICLE

Moderating effect of pay dispersion on the relationship

between employee share ownership and labor productivity

Sukanya Sengupta

1

| Yeongjoon Yoon

2

1

Royal Holloway College, University of

London, Egham, England

2

College of Business Administration, Texas

A&M University–Central Texas, Killeen, Texas

Correspondence

Sukanya Sengupta, Royal Holloway College,

University of London, Egham Hill, Egham

Tw20 0EX United Kingdom.

Email: sukanya.sengupta@rhul.ac.uk

The moderating effect of pay dispersion on the relationship between employee share owner-

ship (ESO) and labor productivity is examined in an unbalanced panel sample of 533 organiza-

tions (1,156 organization-year data points) in Korea. Pay differential between job levels

(vertical pay dispersion) is theorized to negatively moderate the ESO–productivity relationship.

On the other hand, pay differential within a job level (horizontal pay dispersion) is theorized to

positively moderate the ESO–productivity relationship. These predictions are partially sup-

ported. Consistent with the prediction, vertical pay dispersion negatively moderates the ESO–

productivity relationship in that the relationship is more negative when vertical pay dispersion

is high. However, we found no support for the moderating effect of horizontal pay dispersion

in this relationship. The results challenge the simplistic view that pay dispersion per se can be

detrimental to the ESO–productivity relationship.

KEYWORDS

employee share ownership, labor productivity, pay dispersion

1|INTRODUCTION

Existing research on employee share ownership (ESO) and, more

broadly, collective incentives has largely focused on the roles of base

pay level as a key boundary condition for the influences of these

practices (Gerhart, Rynes, & Fulmer, 2009; Kruse, Freeman, & Blasi,

2010b). However, pay dispersion (or inequality) is another key ele-

ment of pay design that can affect how pay level influences pay out-

comes (Shaw, 2014). Pay level and dispersion are two closely related

elements of pay systems. Hence, it naturally follows that pay disper-

sion in ESO firms is worthy of investigation.

Recent work on ESO suggests that pay dispersion may diminish

the effectiveness of these schemes because they are conflictual in

nature (Blasi, Kruse, & Markowitz, 2010). ESO seeks to broaden the

distribution of wealth, whereas pay dispersion widens the divide

between the haves and the have-nots. Indeed, some economists

argue that expected productivity benefits associated with ESO will

not be realized unless these schemes are accompanied by low wage

and status differentials (Levine, 1990).

In this study, we advance this debate by proposing that different

kinds of pay dispersion (i.e., vertical and horizontal pay dispersion)

have different moderating effects on the ESO–productivity relation-

ship. Specifically, we hypothesize that the relationship between ESO

and labor productivity is less positive in firms with high vertical pay

dispersion, while the relationship is more positive in firms with high

horizontal pay dispersion. We test our theory using the Human Capi-

tal Corporate Panel (HCCP), a publicly available database in South

Korea (hereinafter Korea).

We make several contributions to ESO research. First, the article

challenges the simplistic and widely held view that high pay disper-

sion is detrimental to the relationship between ESO and labor pro-

ductivity. Second, we provide further support to the contingency

perspective in managing ESO. Finally, we also make a contribution to

the pay dispersion literature in which the studies are often con-

strained to examining “horizontal”or “vertical”pay dispersion in isola-

tion. In this study, we investigate two types of pay dispersions

simultaneously and demonstrate the differential effects of the two

practices. Although this is not the first article to do this (e.g., Siegel &

Hambrick, 2005, is an exemplar), it is doing this in a unique context

(i.e., within the ESO–productivity relationship in Korea and for all

employees, not just executives).

DOI: 10.1002/hrm.21899

Hum Resour Manage. 2018;57:1083–1096. wileyonlinelibrary.com/journal/hrm © 2018 Wiley Periodicals, Inc. 1083