Implications of Multiple Concurrent Pay Comparisons for Top-Team Turnover

Abstract

This article relies on tournament and social comparison theorizing to understand how multiple concurrent pay structures and, thus, potential for comparison to multiple referents, affect turnover in the CEO’s top team. Specifically, we explore how the concurrent effects of pay dispersion within the CEO’s top team, pay disparity between the team and the CEO, and pay level in comparison to top teams at other firms in the industry affect turnover among members of the CEO’s top team. Consistent with social comparison theorizing, we find that pay dispersion is positively associated with turnover within CEO’s top teams. We also find that pay disparity has an effect consistent with tournament theorizing in which firms with greater tournament prizes (i.e., CEO salary gap) have lower turnover within their CEOs’ top teams. Furthermore, we find that pay disparity interacts with both pay dispersion and pay level to affect turnover within CEOs’ top teams. These results have theoretical and practical implications for CEOs’ top-team pay design in organizations. Specifically, our findings imply that theoretical mechanisms associated with how firms compensate executives—and the inherent comparisons in which those pay structures result—work in concert to affect turnover within the CEO’s top team. Hence, to understand the effect that compensation has on executives’ subsequent responses, researchers and practitioners must consider multiple concurrent pay references simultaneously.