Disentangling horizontal pay dispersion: Experimental evidence

Abstract

Summary Although horizontal pay dispersion has been explored extensively using cross‐sectional field methods, it has received little attention using the control available through experimental designs. Many of the questions relevant to pay dispersion research can be addressed by taking an individual‐level experimental approach because this allows for clean separation of pay policies and individual effects. In this paper, we hypothesize both the motivation‐based and affect‐based effects of pay dispersion policies and test our hypotheses with a sample of over 400 participants in a real‐pay, real‐effort experiment. Results of the experiment provide support that two pay dispersion‐related pay policies, performance‐based pay dispersion and allocation criteria , have unique effects. Whereas motivation and performance effects are direct, pay satisfaction and interest in continuing work effects are the result of interactions, incorporating the performance level of workers. In follow‐up analyses, we find evidence that the temporal nature of responses to pay dispersion should be incorporated into future studies of pay dispersion.

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