Pulling in different directions? Exploring the relationship between vertical pay dispersion and high‐performance work systems

Vertical pay dispersion (VPD), a hierarchical pay structure used to motivate employees, has traditionally been studied separately from high‐performance work systems (HPWSs). As a component of HPWSs, incentive‐based compensation schemes focus on employee‐ or team‐level incentives. However, the influence of the simultaneous utilization of VPD and HPWS on performance remains understudied. This study addresses the question of whether these approaches to managing human capital serve as complements or substitutes to one another. VPD and HPWS are argued to substitute for one another with respect to motivation‐ and skill‐enhancing practices. The opposite notion is true in regard to opportunity‐enhancing HPWSs, which serve to amplify the effectiveness of VPD. In a multisource, longitudinal sample of South Korean firms, the hypothesized predictions are supported.