Money Ethic ScalePart 3

Pay Differential

The Matthew Effect &The Pay Differential

Tang (1996) Journal of Economic PsychologyTang, T. L. P., Furnham, A., & Davis, G. M. T.

W. (in press). A cross cultural comparison of pay differentials as a function of rater’s sex and money ethic endorsement: The Matthew Effect revisited. Personality and Individual Differences.

The Matthew Effect

Gabris and Mitchell (1988):Apostle Matthew in the bible (13:12)

For to him who has shall be given, and he shall have abundance; but from him who does not have, even that which he has shall be taken away (Matthew 13: 12).

The Matthew Effect

According to the Matthew Effect, merit increases are frequent and plentiful for good performers. But, poor to average performers suffer because money is taken from them to pay large merit increases to the good performers (p. 55). Heneman, Robert L. (1992). Merit pay.

Sex and Money

Equity (Merit) Vs. Egalitarian (Equality)Women rate social needs higher than do men

(Lawler, 1971).Males, white-collar employees, high

performers, achievement-oriented employees and those who already work under a merit plan tend to favor merit pay (Heneman, 1992).

Pay Differential

The pay differential, irrespective of job content or function, is defined as the salary at one level divided by the salary at the next lower level.

Pay differential is a reflection of the relative worth of these positions to the organization and is not related to the job incumbents (Mahoney, 1979; Simon, 1957).

Pay Differential--In History

Plato sated in The Laws that society was strongest when the pay differential for income between the richest and the poorest was 4:1.

Aristotle favored a 5:1 ratio.

Pay Differential in 1970s

Mahoney (1979)No. 1/No. 2 = 1.37 to 1.41

No. 2/No. 3 = 1.21 to 1.23

Pay Differential in 1990s!

Hausman (1996): No. 1/No. 2

1991 1.701992 1.631993 1.771994 1.70 and

1995 1.93 (~ 2.00).

Pay Differential (Average CEO)

Year CEO Worker ratio

1960 190,383 4,666 41

1970 548,787 6,933 79

1980 624,996 15,008 42

1992 3,842,247 24,411 157.

Pay Differential (Average CEO)

Year CEO Worker Ratio

1993 3,841,273 25,317 152

1994 2,880,975 26,388 109

1995 3,746,392 26,652 141

1996 5,781,300 27,662 209

1997 7,804,755 28,381 275.

Pay Differential (Highest Paid CEO)

Year Highest CEO Worker Ratio1991 58,999,000 18,462 3,1901992 127,000,000 24,411 5,203

1993 203,010,590 25,317 8,019 1994 25,928,000 26,388 983

1995 65,580,000 26,652 2,4611996 102,449,000 27,662 3,7041997 230,725,000 28,381 8,130

1998 575,592,000 30,000 19,180 & This is different from the 4:1 or 5:1 ratio.

Pay Differential

USA 150

Japan 15

Europe 20

Nelsen-Horchler (Industrial Week, 1990, 1991)

MethodOrganization Chart

Hypothetical Organization Chart

Mahoney (1969)

C (CEO) = A b L-1

See Example (next slide)

Organization Chart

20,000

A

B C

D E F

C (CEO) = A b L-1

Tang (1996)

Men with high Money Ethic endorsement allocated significantly more money to the highest position and less money to the lowest position (creating a large pay differential) than did those with low MES.

Women’s allocations of money were not affected by their endorsement of the MES.

Top/Bottom Pay Differentials

Sex x Money: F (2, 157) = 3.04, p = .051

Sex Groups F-Employee F-Student M-Student

High MES 2.20 2.79 2.96*

Low MES 2.42 2.53 2.04* *p < .05.

Pay Differential

Taiwan, USA, UK

Taiwan: 78 ProfessionalsThe USA: 137 ProfessionalsThe UK: 93 Professionals

The 12-Item Money Ethic Scale

The Matthew Effect

Taiwan USA UK Sex F M F M F M High

2.63 2.77 2.20 2.83 2.56 2.39 Low 2.05 2.07 2.35 2.38 2.71 2.15

The Whole Sample Sex F M

High MES 2.43 2.67* Low MES 2.36 2.18*

Culture

Collectivist cultures value strong, cohesive in-groups (i.e., equality), whereas individualistic societies emphasize individual freedom and the immediate family (i.e., equity).

Individualism: USA (1), UK (3), Taiwan (44)Masculinity: UK (9/10), USA (15), Taiwan

(32/33). (Hofstede & Bond, 1988).

Confucianism

Man’s interactions with his fellow humans (Rhody & Tang, 1995).

The junior partner owes the senior respect and obedience.

The senior owes the junior partner protection and consideration (Hofstede & Bond, 1988).

Organization Chart

20,000

A

B C

D E F

C (CEO) = A b L-1

Results

MANOVA F = 2.78*** Taiwan USA UK

A 35,526 34,658 31,608 1>2>3C 19,754 19,326 19,007D 15,421 14,742 13,920 1>2>3E 15,280 14,698 13,768 1>2>3F 15,473 14,663 13,673 1>2>3.

Pay Differential

MANOVA F = 3.31*** Taiwan USA UK

A/20000 1.77 1.73 1.58 1>2>3C/20000 .99 .97 .9520000/D 1.34 1.40 1.49 1<2<320000/E 1.37 1.41 1.51 1<2<320000/F 1.34 1.41 1.43 1<2<3.

Pay Differential--PRC

Tang, T. L. P., Luk, V., & Chiu, R. K. (2000, C&BR). Pay differentials in People’s Republic of China: An examination of internal equity and external competitiveness.

Compa Ratio

Compa ratio is usually defined as the ratio of actual pay to structure midpoint, or, the ratio of actual pay to competitive pay.

In this study, we compare pay differentials within organizational structure (vertical) and across organizations.

Higher EducationIn 1950, 43% of high school students in the USA

pursued higher education, 6% of Americans were college graduates.

In 1992, 66% of high school students went to college, and 21% of a larger American population had college degrees.

Some 17 million students are attending classes taught by 762,000 professors on 3,400 campuses in the US (Elfin, 1992; Tang & Chamberlain, 1997).

Education and Pay

In 1963, College graduates 8.45/hr High School graduates 6.10/hr

Ratio = 8.45/6.10 = 1.39

In 1990, College graduates 10.25/hr High School graduates 6.82/hr

Ratio = 10.25/6.82 = 1.50

College Tuition

Tang, T. L. P., Tang, D. S. H., Tang, C. S. Y. 2004. College tuition and perceptions of private university quality. International Journal of Educational Management, 18 (5): 304-316.

Academic reputation ranking is the most significant predictor of college tuition.

Investment

Reputation

Kent Tool, IH: If you are looking for the best people, one way to be sure of finding them is to let someone else do the screening for you (Friedrich, 1981, Time).

Reputation

Judge, Cable, Boudreau, & Bretz (1995) studied 1,388 executives (9% Ivy League) and found that the predicted earning advantage for Ivy League graduates, over the course of a 20-year career, is more than $600,000 (p. 510).

Method

1998 China Pay Level Survey

Sponsored by the Hong Kong Industrial Relations Association and Wing Lung Bank International Institute for Business Development of Hong Kong Baptist University

Research Data

19-page survey mailed to 200 companies in PRC

104 Companies (return rate = 52%)

Covering 56,390 employees

Benchmark Job

63 Benchmark jobs: 4 Levels

Managerial Staff (14 jobs)

Supervisory/Technical Staff (21)

General Staff (19)

Operative Staff (19)

Region

Beijing

Shanghai

Guangzhou

Shenzhen and Zhuhai

and Others

Business Sector

Retail, food and beverage, professional services, sales and marketing, property management, telecommunication, computer and electronics, electrical and machinery, metal, industrial materials, construction, and others.

Service (48) vs. Manufacturing (35)

Mode of Operation

State-owned (SOEs, n = 5) and

Privately-owned: Wholly-owned vs. Joint venture, cooperative venture, processing venture, representative office

Wholly-owned (14) vs. Venture (84)

Company Size

Less than 300 Employees (69)

Between 300 to 1,000 (15)

More than 1,000 (20)

Annual Salary Service vs. Manufacturing (RMB)

A B Service Manuf. A/B

Accounting Mgr. 52,476 80,387 .65 QC Supervisor 39,528 26,798 1.47

Engineer 37,540 28,273 1.33Security Guard 12,133 8,689 1.40

Average 1.21.

Company Size

A B C Small Median Large A/C B/C

Clerk 16,969 15,024 11,742 1.45 1.28Store 14,841 11,096 9,821 1.51 1.13

Mode of Operation

A B Wholly Venture A/B

Sales Mgr 13,500 68,184 .20 Purchasing Mgr 84,499 53,068 1.59

Accountant 42,871 31,786 1.35 Systems Analyst 30,144 43,463 .69 QC Technician 21,772 14,257 1.53 Average 1.07.

Levels of Education PRC

Jr. Secondary 9 years of education

Sr. Secondary (HS) 12

Diploma (HS + 2) 14

High Diploma (3 yr.) 15

University 16.

Starting Monthly SalaryService vs. Manufacturing

Engineering A B Service Manuf. A/B

Jr. Secondary (9 yr.) 626 371 1.69Sr. Secondary (12) 947 686 1.38Diploma (14) 1,061 615 1.72University (16) 1,974 1,302 1.52

A 1974/626 = 3.15 B 1302/371 = 3.51 A/B = .90

Starting Monthly SalaryService vs. Manufacturing

Sales A B Service Manuf. A/B

Jr. Secondary 707 307 2.30Sr. Secondary 997 725 1.38Diploma 1,077 765 1.41

A 1077/707 = 1.52 B 765/307 = 2.49 A/B = .61

Starting Monthly SalaryService vs. Manufacturing

Marketing A B Service Manuf. A/B

Jr. Secondary (9) 633 307 2.06Sr. Secondary (12) 894 431 2.07Diploma (14) 970 560 1.73High Diploma (15) 1,419 993 1.43University (16) 1,947 1,153 1.69

A 1947/633 = 3.08 B 1153/307 = 3.76 A/B = .82

Starting Monthly SalaryService vs. Manufacturing

Manufacturing A B Service Manuf. A/B

Jr. Secondary 610 364 1.68Diploma 918 567 1.62

A 918/610 = 1.50 B 567/364 = 1.56 A/B = .96

Top-Bottom Pay DifferentialAnnual Salary

Pay Dif FAdministration 4.58 17.28Information Tech. 3.41

Accounting 2.36 2.85Marketing 1.90

Top-BottomService vs. Manufacturing

A B

Service Manuf. FAccounting Mgr/ 2.55 5.71 6.5*Entry University

A/B = .45

Starting Monthly SalaryUniversity/High Diploma

Field Pay Dif. tEngineering 1.20 2.13* Sales 1.17

Information Tech. 1.19 2.41*Sales 1.17

Conclusion

There are significant pay differentials within organizations (internal equity) and across organizations (external competitiveness).

Organizations may have employed different strategic compensation policies due to the nature of their operation and environmental variables.

Conclusion

There are significant pay differentials within organizations (internal equity) and across organizations (external competitiveness).

Organizations may have employed different strategic compensation policies due to the nature of their operation and environmental variables.

Conclusion

Education is a good investment in pay.Education is more important in some careers (engineering, information technology) than others (sales).

Judge, Cable, Boudreau, & Bretz (1995): 1388 executives, 9% from Ivy League.

The rite of passage vs. the right of passage

Conclusion

How do you Attract, Retain, and Motivate Employees?

A Challenge for Managers and Researchers

Human Resource Management is a wonderful field in the Global Competition.

Great Future for All.

Money Ethic Endorsement andAFDC Welfare Recipients

Tang, T. L. P., & Smith-Brandon, V. L. 2001. From welfare to work: The endorsement of the Money Ethic and the Work Ethic among welfare recipients, welfare recipients in training programs, and employed past welfare recipients. Public Personnel Management, 30 (2): 241-260.

Money Ethic Endorsement andAFDC Welfare Recipients

The Social Security Act of 1935 created 3 public assistance programs. One of them was the Aid to Families with Dependent Children (AFDC)

AFDC Welfare Recipients (164)AFDC Welfare Recipients in Training

Programs (159)Employed Past Welfare Recipients (158)

AFDC Welfare Recipients: Gender

AFDC Training Employed Male 6 9 11 Female 159 151 148

Race

AFDC Training Employed Caucasian 36 38 44 African 126 119 115 Hispanic 2 3 0 Asian 1 0 0

Marital Status

AFDC Training Employed Single 137 131 111 Married 1 5 18 Divorced 24 24 24 Widowed 3 0 5

Fathers Missing

AFDC Training Employed 0 0 2 0 1 71 87 95 2 66 56 48 3 26 13 13 4 2 2 3

Mothers on AFDC

AFDC Training Employed Yes 67 69 51 No 98 91 108

Results

AFDC Training Employed Education 12.52 12.89 14.54 1,2<3 Benefits 4.24 3.72 13.87 1,2<3 Children 2.20 1.91 1.87 2,3<1 Father Miss 1.74 1.56 1.53 2,3<1 Months on 71.68 59.50 69.80 Months off .22 .70 15.84 1,2<3 Job Tenure .74 .43 18.54 1,2<3

MES

AFDC Training Employed Good 32.17 34.49 39.28 1<2<3 Evil 16.90 17.09 12.93 3<2<1 Ach 11.81 11.79 11.56 Respect 11.48 12.52 12.68 1<2,3 Power 12.04 12.84 13.47 1<3 Budget 9.98 9.95 11.32 1,2<3

Work-Related Attitudes

AFDC Training Employed PWE 13.79 12.90 15.92 2<1<3 S-Esteem 26.06 25.85 32.87 2,1<3 LOC 14.82 9.35 11.42 2<3<1

Regression of MES

Good Beta Self-Esteem .35 PWE .26 Benefits/Income .19 Evil Self-Esteem -.39 Benefits/Income -.25

Regression of MES Achievement Beta Self-Esteem -.25 PWE .13 Age .12 LO Control -.09 Respect Months off .22 Self-Esteem -.16 LO Control -.13

Regression of MES

Power Beta Months off .18 PWE .12 Budget Self-Esteem .39 PWE .12

Conclusion

No differences among the three groups regarding age, sex, race, marital status, and months on AFDC. Equal Opportunity.

Significant differences: Employed: education (high), number of children (low), number of fathers missing (low), months off AFDC (high), and job tenure (high).

Significant differences: Employed scored high on Factors Good, Respect, Power, and Budget.

Conclusion

Employed scored high on PWE, Self-Esteem.

AFDC scored high on Factor Evil and External Locus of Control (LOC).

AFDC in training scored high on Internal LOC. Get out, meet new people, receive training, and have new Hope.