Pay Dispersion and Executive Behaviour: Evidence from Innovation

Mario D. Amore; Virgilio Failla

doi:10.1111/1467-8551.12337

Pay Dispersion and Executive Behaviour: Evidence from Innovation

Mario D. Amore, Virgilio Failla

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Abstract

Compensation packages are widely used to motivate top executives. Pay dispersion among a firm's executives, however, can be associated with the antithetic effects of social comparison and individual motivation, with unclear implications for the company. We focus on innovation activities, which represent an important channel through which pay dispersion can affect firm performance, and test our predictions by exploring innovative output as a function of executives’ pay dispersion in a panel of US firms. We find that executive pay dispersion acts as a double-edged sword. On the one hand, the higher the dispersion in variable pay, the higher the innovation. On the other hand, the larger the dispersion in fixed pay, the lower the innovation. Results are robust to a number of tests, such as restricting the analysis to executives with direct responsibility for innovation projects and considering individual incentives in the form of cash pay.

Original language	English
Pages (from-to)	487-504
Number of pages	18
Journal	British Journal of Management
Volume	31
Issue number	3
Early online date	13 Dec 2018
DOIs	https://doi.org/10.1111/1467-8551.12337
Publication status	Published - 31 Jul 2020

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This is the peer reviewed version of the following article: ,Amore, M.D. and Failla, V. (2020), Pay Dispersion and Executive Behaviour: Evidence from Innovation. Brit J Manage. which has been published in final form at https://doi.org/10.1111/1467-8551.12337. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
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Cite this

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Pay Dispersion and Executive Behaviour: Evidence from Innovation

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