The Peril of Paycheck Dispersion: When Fluctuations in Compensation Jeopardize Worker Retention

Lindsey Cameron, Management, The Wharton School, and Jirs Meuris, Wisconsin School of Business

Abstract: As agency theory have garnered influence inside organizations, employers have increasingly relied upon variable compensation systems in managing their human capital. In doing so, a substantial proportion of the current labor force is prone to experiencing paycheck dispersion, defined here as variance in earnings from paycheck to paycheck. In this paper, we combine multiple sources of qualitative and quantitative data to explore how this paycheck dispersion affects workers’ lives and its subsequent organizational consequences. In the first study, consisting of interviews and surveys from ride-hailing drivers (n=63), we find that workers were broadly averse to paycheck dispersion and constantly looked for strategies that could effectively mitigate it, ranging from working longer hours to quitting. Based upon this data, we theorized that paycheck dispersion may increase the likelihood of voluntary turnover as workers seek an escape from the variance in their compensation. However, we further predicted two boundary conditions to this relationship: (a) the perceived ability to manipulate paychecks through one’s own actions and (b) the economic composition of one’s household. The hypotheses derived from our theory were tested using matched individual-level survey and archival data from a sample of truck drivers (n = 711) employed by a national transportation company. We found that paycheck dispersion is positively associated with the likelihood of turnover, but the extent of this relationship varied considerably along the predicted boundary conditions. Taken together, the theory and findings demonstrate that variance in compensation from paycheck to paycheck undermines retention, even among workers who earn more on average.