Baseball Pay Inequality May Be Bad for Team Performance

At the end of the 1990s, Matt Bloom, a professor at the
University of Notre Dame, set out to analyze whether or
not unequal rewards induce greater individual effort and
team performance.

Bloom analyzed 9 years of public data available about
Major League Baseball related to player salaries and team
performance. 

Bloom found that the greater the pay differential between
the superstars and the rest of the players, the worse was
the performance record of the team. 

In fact, for the 1998 baseball season, three of the five
teams with the most unequal payrolls finished last in
their divisions while three of the five teams with the
most equitable compensation structures finished first in
their divisions.

Is it coincidental that after signing Alex Rodriguez to a
10-year $252 million contract in 2001 the Texas Rangers
finished last for the next 3 years?  Conversely, the team
that lost Rodriguez, the Seattle Mariners, immediately
tied the major league record for wins in a season.

What are the implications of this research for companies?

HR POINTER: When you have a team of people who work on a
common task and fulfill similar roles in the team, the
evidence seems to suggest that the compensation system
should be relatively equal.

The key words here are “relatively equal.”  This is not to
suggest that exemplary results should not be rewarded
accordingly, provided those rewards are made available to
all team members.  However, it does suggest that rewarding
superstars at significantly more than the rest of the team
may adversely affect overall performance.

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