When and Why Group Pay Dispersion Enhances Employee Performance: A Collective Identity Orientation Perspective

Organizations use compensation to attract, retain, and motivate employees to achieve their strategic goals. This research shifts the focus of pay differences from individuals to groups by focusing on pay differences among employees in the same functional work teams (i.e., within‐group pay dispersion) and between employees across functional work teams (i.e., between‐group pay dispersion). Drawing on identity theories, we propose that between‐group pay dispersion strengthens employee collective identity orientation, which in turn increases employee task performance and in‐group helping. This relationship is less salient when within‐group pay dispersion is larger and more salient when within‐group pay dispersion is smaller. The results of two multi‐wave field survey studies (Studies 1 and 4) support our predictions. Two controlled experiments (Studies 2 and 3) strengthen the causal explanations and enhance result robustness. Our findings suggest that between‐group pay dispersion may lead to desirable employee performance behaviors and provide insights into pay strategies.