The Effects of Pay Dispersion and Demographic Similarity on Employee Turnover

Adam Cobb, McComb School of Business; Samir Nurmohamed, Management, The Wharton School; and J.R. Keller, Cornell University

Abstract: Scholars have long recognized that individuals compare their rewards to those received by similar others and that satisfaction is determined, in part, by perceptions of (un)fairness that arise from these comparisons. Extensive research has also found that individuals frequently select others as pay referents who share the same race and the same gender, suggesting that demographic similarity strongly affects equity perceptions. Leveraging this insight, we examine whether the proportion of others in one’s work unit who are of the same race or gender moderates the relationship between horizontal pay dispersion and voluntary turnover. Based on a unique, single-firm sample of workers employed by a Fortune 50 organization, the results show that the relationship between pay dispersion and turnover is moderated by the degree of racial and gender similarity that workers share with work-unit peers, such that the positive relationship between pay dispersion and voluntary turnover becomes stronger when work-unit demographic similarity is higher. Supplemental analyses suggest that this pattern holds for males, females, and whites but not for non-whites. These analyses also provide additional empirical evidence that our findings most likely result from the propensity of males, females, and whites to compare themselves to same-category others.

Read the full working paper here (PDF).

Michelle Eckert is Marketing and Communications Coordinator for the Mack Institute, where she works to engage students, researchers, and corporate partners in opportunities for collaboration. Michelle received her B.A. in Art from Valparaiso University in 2007. Her background includes two AmeriCorps terms of service working to teach mathematics, computer literacy, and job readiness skills to out-of-school youth in Philadelphia, focusing particularly on promoting access to post-secondary education.