Dispersed or Skewed? An Expanded Conceptualization and Longitudinal Analysis of Pay Dispersion and Its Firm-Level Implications

This article extends prior research on the performance implications of horizontal pay dispersion. Prior research has shown mixed evidence about the influence of pay dispersion, and most studies have conceptualized and measured pay dispersion based on its variance and range. I seek to examine whether the effects of pay dispersion on firm performance change when pay skewness—the lopsidedness of pay distribution—is taken into account. Consequently, I explore the following questions: (a) what is the main effect of pay skewness on firm performance? (b) What is the joint effect of pay dispersion and pay skewness on firm performance? Based on the results of longitudinal analyses using five-wave panel data, my results show that there is an inverted U-shaped relationship between pay skewness and firm performance. More importantly, the drawbacks of pay dispersion are mitigated when the pay distribution is left-skewed (i.e., low pay skewness; more winners), and the drawbacks of pay dispersion are exacerbated when the pay distribution is right-skewed (i.e., high pay skewness; more losers).