THE EFFECTS OF PAY DISPERSION BETWEEN EXECUTIVES AND EMPLOYEES OF AN ORGANIZATION ON FIRM PERFORMANCE: EVIDENCE FROM TURKEY

This study examines the performance consequences of pay dispersion in publicly-listed firms in Turkey for the period 2009 to 2013. Our study focuses on vertical pay dispersion, which reflects intra-firm and vertical differences between pay at two important hierarchical levels: top executive level and lower hierarchical level. We intend to present arguments based on equity theory and tournament theory, and will propose two contradictory hypotheses to test them within the context of an emerging market. Results provided in the present study confirm that pay dispersion between executives and employees has a positive impact on a firm's profitability in Turkey. Our study contributes current empirical evidence by examining vertical pay dispersion in an emerging country context, which may have a different cultural orientation and societal-wide assumptions concerning fairness, power and disparities, relative to its developed country counterparts.