Does employee ownership moderate the outcomes of pay dispersion?

Abstract

Purpose The purpose of this paper is to answer the question: What happens to the outcomes of pay dispersion when the employees own stock in their own company? Design/methodology/approach The data set consisted of over 20,000 employee surveys. Pay dispersion was measured with the Gini coefficient. The outcome variables were attitudes and behaviors with numerous controls. The moderation effect of employee ownership was investigated at the individual and group level using multilevel regression analysis. Findings Most hypothesized outcomes did not yield statistically significant results. The results that were statistically significant had two patterns: first, higher pay dispersion was consistently associated with improved attitudes and behaviors; and second, employee ownership moderated the outcomes of pay dispersion for certain outcomes and job types (e.g. perceptions of company fairness among administrative support personnel, or absenteeism and production personnel). There was no evidence to support a link between pay dispersion and attitudes across job types (vertical), only within job types (horizontal). Research limitations/implications All the data were self-reported in surveys. Attitudes were measured with single items rather than validated scales. The data were cross-sectional, so no causality can be inferred. Practical implications While both higher pay dispersion and employee ownership can motivate employees, the interaction between them can be negative, especially in a cooperative environment. Consideration should be given to this when designing compensation packages. Social implications There was a surprisingly strong link between higher pay differentials and improved attitudes, suggesting that the opportunity for higher pay is more influential than any feelings of inequity. Originality/value The effect of employee ownership on the outcomes of pay dispersion has never been investigated. This should be valuable given how widely higher pay is used to attract, retain and motivate employees (leading to pay dispersion) as well as how increasingly popular employee ownership is becoming.