The effect of social capital, salary compression and equity on individual and organizational performance

Summary

Rafael Gomez's 2000 doctoral thesis, "The effect of social capital, salary compression and equity on individual and organizational performance," investigates the intricate relationship between compensation structures and workplace outcomes. The core premise of the research is to understand the conditions under which internal pay equality, defined as compressed salary structures, and organizational efficiency, measured by team performance, can be complementary. The paper posits that the link between internal pay equality and organizational performance is indirect, primarily operating through the cultivation of social cohesion within a team. This social capital, crucial for team effectiveness, is argued to be diminished when an organization perceives its labor input merely as a variable cost to be minimized, rather than a fixed investment. A related publication by Gomez in 2002, "Salary Compression and Team Performance: Evidence from the National Hockey League," provides empirical insights into these theoretical propositions, likely drawing from or expanding upon his doctoral work. This study employed data from 26 National Hockey League (NHL) teams over five consecutive seasons, spanning from 1993/94 to 1997/98, to analyze the impact of salary compression on team performance. The methodology involved statistical analysis, including Ordinary Least Squares (OLS) regressions, and also considered team fixed effects to control for unobserved team-specific characteristics. The findings from this empirical analysis offered "tentative confirmation" for the social capital hypothesis, suggesting that pay equality indeed has a positive effect on individual and team performance. However, the study noted that these results were sensitive to the specific time periods used in the analysis, indicating a need for further research with more extensive datasets. The implications of Gomez's research are significant for human resource management and organizational strategy. The study underscores that fostering social capital through equitable pay structures can lead to improved individual and team performance. It challenges the conventional view of labor solely as a variable cost, advocating for its recognition as a fixed cost to preserve and enhance social cohesion within organizations. The sensitivity of the findings to the time periods used also suggests that the effects of salary compression and equity might vary across different contexts or over time, highlighting the complexity of these relationships and the importance of dynamic analysis in future studies.