Pay Inequality, Job Satisfaction, and Firm Performance

55 Pages Posted: 9 Jul 2019 Last revised: 29 Jul 2019

See all articles by T. Clifton Green

T. Clifton Green

Emory University - Department of Finance

Dexin Zhou

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: July 6, 2019

Abstract

We find that within-firm base pay inequality is negatively associated with employee morale. Increases in hourly wages improve morale even among high-salaried employees. In contrast, total pay inequality is positively associated with morale. Low base pay (high total pay) inequality corresponds with employer reviews that emphasize fairness and commitment (talent and reward). Base pay inequality is negatively related to firm performance with no significant relation for total pay inequality. The evidence is consistent with employees viewing base pay as compensation for unobservable effort, with disparity harming morale and productivity. Incentive-based pay disparity may positively signal the value of promotions, yet it is not associated with greater overall productivity.

Keywords: Income inequality, employee satisfaction, CEO pay ratio, corporate culture, compensation

JEL Classification: G32, J31, M12, M14,

Suggested Citation

Green, T. Clifton and Zhou, Dexin, Pay Inequality, Job Satisfaction, and Firm Performance (July 6, 2019). Baruch College Zicklin School of Business Research Paper No. 2019-07-03. Available at SSRN: https://ssrn.com/abstract=3415937 or http://dx.doi.org/10.2139/ssrn.3415937

T. Clifton Green

Emory University - Department of Finance ( email )

1300 Clifton Rd.
Atlanta, GA 30322-2710
United States
404-727-5167 (Phone)
404-727-5238 (Fax)

Dexin Zhou (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

55 Lexington Avenue
New York, NY 10010
United States

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