Pay dispersion is a core organizational attribute, but its’ relationship to employee turnover is relatively unclear. We propose this is the case because prior research suffers from two limitations: (1) it neglects how pay dispersion impacts employees’ psychological attitudes toward their job, and (2) it assumes that teams are homogenous, disregarding that variations in team characteristics shape how employees experience pay dispersion. The current research addresses these shortcomings by drawing on job demand-control theories to investigate how pay dispersion shapes employees’ job attitudes, and explicitly incorporates one aspect of team heterogeneity, team size variations. More specifically, our core proposition is that team pay inequality, i.e., the pay dispersion of employees within a team, reduces employees’ job control—their perceived capability to control work—particularly when teams are larger. This, in turn, makes it more likely employees in large unequal teams leave their organization. Two unique large-scale archival and survey datasets from a technology (N = 881) and financial services company (N = 22,816) provide support for our hypotheses. The current research thus offers a novel perspective on pay dispersion: salary differences within teams fundamentally shape employees’ job attitudes—particularly their job control—and thus determine important organizational outcomes.
Wage bargaining as an optimal control problem: a dynamic version of the efficient bargaining model