讲座简介: Pay dispersion in organizations is rising and has received increasing attention in recent years. Although prior research has documented several negative consequences of high pay dispersion, we document one of its potential benefits, that is, to reduce collusion between employees. We conduct an experiment to examine the effect of pay dispersion on employee collusion. In our experimental setting, two subordinates compete in a tournament and a superior and the firm benefit from their effort contributions. The two subordinates can collude by both providing a low level of effort, which increases their own payoffs at the cost of the superior and the firm. We manipulate horizontal pay dispersion (i.e., the ex-ante fixed wage gap between the subordinates) and vertical pay dispersion (i.e., the ex-ante fixed wage gap between the subordinates and their superior). Economic theory predicts that ex-ante fixed wage differences should not affect rational subordinates’ interest in collusion. However, based on behavioral theory, we predict and find that both horizontal and vertical pay dispersion each individually reduce collusion by increasing defection among subordinates. Additional data suggest that reduced cohesion and trust between subordinates as well as their elevated desire to reduce pay disparity underlie these results. We also find that when one type of dispersion is present, the effect of the other type of dispersion weakens, possibly due to the switch of pay referent from superior to subordinate or vice versa.
