The Effects of Compensation Inequality and Injustice on Team Performance in Major League Baseball

• In Event: 4467 - Section on Social Psychology Refereed Roundtables (Cosponsored with Section on Sociology of Emotions)
  In Refereed Roundtable 100min: Table 2: Social Support and Injustice

Abstract

What is the optimal strategy of compensation? What is the optimal allocation of salaries in an organization if we are to maximize the performance of the entire organization? We seek to answer these questions using Major League Baseball data from 1985 to 2016. Prior studies have looked at salary dispersion on team performance but reached mixed conclusions. We argue that prior studies have failed to consider injustice as a mechanism above and beyond salary dispersion in determining team performance. We use the justice index developed in Jasso’s (1999) and the measure of inequality proposed by Atkinson (1970, 1975) to examine the effects of overall level of payroll, and the inequality and injustice of compensation on team performance. Results based on fixed-effects regression models for panel data suggest that all of them have a positive effect on team performance. That is, net of the overall level of payroll, more unequal and more just distribution of salaries improves team performance in Major League Baseball. We interpret these findings as consistent with the idea of meritocracy. Compensation should be unequal but just.

Authors

• Bertina Lin, Morrison Academy Taipei

• Jui-Chung Allen Li, Quanthon Corporation