Moderating effect of pay dispersion on the relationship between employee share ownership and labor productivity

The moderating effect of pay dispersion on the relationship between employee share ownership (ESO) and labor productivity is examined in an unbalanced panel sample of 533 organizations (1,156 organization-year data points) in Korea. Pay differential between job levels (vertical pay dispersion) is theorized to negatively moderate the ESO-productivity relationship. On the other hand, pay differential within a job level (horizontal pay dispersion) is theorized to positively moderate the ESO-productivity relationship. These predictions are partially supported. Consistent with the prediction, vertical pay dispersion negatively moderates the ESO-productivity relationship in that the relationship is more negative when vertical pay dispersion is high. However, we found no support for the moderating effect of horizontal pay dispersion in this relationship. The results challenge the simplistic view that pay dispersion per se can be detrimental to the ESO-productivity relationship.