The effect of wage dispersion on team outcome and the way team outcome is produced

The impact of intra-team pay dispersion on team productivity is a highly discussed issue. On the one hand, wage differentials provide incentives for higher employee effort. On the other hand, pay inequality may reduce team cohesiveness and increase feelings of relative deprivation leading to lower performance. Analysing nonlinear effects of wage dispersion in professional soccer, we find empirical evidence that team performance is strongest when there is either very high or very low wage inequality. Medium levels produce the weakest team performance. In addition, we show that the pay structure affects the team's playing style even after controlling for team and coach heterogeneity. We discuss the theoretical and managerial implications as well as the limits of generalization.