Reexamining the Pay Differentials-Organizational Outcomes Relationship in Korea : The Role of Organizational Identification

Abstract

This research examines the effects of pay differentials on financial performance and employee turnover in Korea by considering a critical employee-based factor: organizational identification. Incorporating tournament theory and social identity theory, authors theorize that pay differentials increase financial performance and employee turnover without considering employees organizational identification. If considered, however, whereas the positive effects of pay differentials on financial performance will be weaker, the effects on turnover will be stronger. Using a sample of Korean cross-industry firms, results show pay differentials have a positive influence on only financial performance. Also, as predicted, while the positive relationship between pay differentials and financial performance became weaker, the relationship with turnover became stronger when employees organizational identification is high. Theoretical and practical implications for strategic pay structures are discussed.