How task assignments influence pay disparities in companies
The steady increase in pay disparities is an important phenomenon in developed countries and has received a lot of political and academic attention in recent years. Taking up this debate, a recent study by Clemens Löffler, Researcher at the Competence Center for Business Controlling & Accounting at FHWien der WKW, and Christian Schmid (University of Vienna) deals with the effects of task assignment, compensation risk and risk attitude on observable pay disparities within companies. The study results reveal a nuanced effect of task assignment, which not only affects individual efforts, but also the dispersion of compensation within companies.
Employees’ attitude to risk influences pay disparities
Optimal task assignment depends on a delicate balance between risk attitude and precision of performance measurement, as the recently in „Management Accounting Research“ published study shows. If the tasks in the organization are generally easy to measure, more risk-prone employees will be assigned tasks where employee performance is more difficult to measure. By contrast, more risk-averse employees are assigned tasks that are easier to measure. This assignment leads to similar performance levels and relatively small pay dispersion. In scenarios with generally difficult performance measurement, however, the assignment is reversed, and more risk-averse employees are assigned tasks that are more difficult to measure. As this assignment is linked to weak performance incentives for these employees, this leads to a divergence in performance levels and subsequently to higher pay dispersion.
Practical recommendations and scientific outlook
The consequences go beyond the theoretical findings and lead to practical recommendations for managers dealing with the complicated interplay between task assignment, risk attitude and compensation. With their study, the authors offer indications for the assignment of tasks with noisier performance indicators and provide information on how companies can strategically structure tasks and the associated remuneration.
Furthermore, the research responds to the call for a more nuanced understanding of pay dispersion. It shows the impact of task assignment on horizontal pay dispersion within a hierarchical level. The results suggest that considering task assignment as a decisive factor for the pay dispersion observed in empirical studies, could provide a more comprehensive understanding of the complex relationships within organizations. Clemens Löffler and Christian Schmid also show that current environmental and political changes, which generally lead to a more uncertain and unpredictable business environment, can have an additional influence on pay dispersion by changing task assignment. This study thus opens new doors for research into the complicated interplay between task assignment, incentive pay and corporate performance.
You can read the study here.