What Baseball Can Teach Managers About Pay Inequality

Last Updated Oct 22, 2008 8:30 AM EDT

  • What Baseball Can Teach Managers About Pay InequalityThe Find: If you manage a team of people who work towards a common goal and perform similar tasks, should you pay them basically equally or offer incentives and unequal rewards? Baseball may provide the answer.
  • The Source: The Random Rantings blog of London Business School professor Freek Vermeulen, citing research by Notre Dame management professor, Matt Bloom.
The Takeaway: Vermeulen has heard plenty of debate on team pay inequality:
"You should pay them all the same" some loudly proclaim, "because they're a team and you don't want to create envy and inequality within the group!" Others will bellow in agony: "But you need to incentivize people â€" stupid!; equal pay kills their motivation; you should pay more to people who (seem to) contribute more, to keep them happy while stimulating the others to better themselves!!"
Now, he thinks he may have found a study that could settle this common office debate. How do you find comparable teams to use as research subjects with known salaries and objective and transparent performance statistics? Notre Dame professor Matt Bloom worked out a solution: use baseball.
Matt collected performance data on 1,644 players in 29 teams, assessing their individual performance through batting runs, fielding runs, earned run averages, pitching runs, player ratings... For team performance, he measured a combination of on-field performance and financial performance, using game wins and revenue and valuation data.
Salary data came from USA Today. He created an indicator of "pay dispersion" that registered the size of pay inequality on each team and then used all these numbers to quantify whether teams were better off with relatively equal pay or with high pay differentials between players.

The final conclusion: "baseball teams performed better if the salaries of the players were not too different from each other." The numbers indicated that the performance of even highly paid players suffered when pay inequality in a team was high.

The Question: The findings may be true for baseball, but do the conclusions hold in an office environment?

(Image of baseball game at sunset by Bob Jagendorf, CC 2.0)

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