Benefits of Pay Disparities?

Many have argued that large pay disparities among employees can harm organizational performance, in large part due to fairness concerns that can harm morale and affect productivity. However, the Boston Globe reports on an intriguing study by Northwestern Professor Adam Galinksy, who found that NBA teams with large salary differentials outperform those clubs with more equal pay among the players. Galinsky offers an explanation for this finding:

“Status is such an important regulating force on people’s behavior, hierarchy solves so many problems of conflict and coordination in groups,” says Adam Galinsky, a psychologist at Northwestern University’s Kellogg School of Management who did the research on social hierarchies on basketball teams. “In order to perform effectively, you often need to have some pattern of deference.”

I'm not suggesting that this study endorses the notion that CEOs should make 100 times what front-line employees take home in pay. However, the study does perhaps have implications for smaller teams within an organization, perhaps including the senior management team itself. It makes sense that an NBA team excels if people understand their role, rather than having multiple players competing to be the go-to guy. Putting aside the pay issues for a moment, management teams surely benefit in most cases from the same type of crystal-clear role definition.