Product Quality and Pay Equity Between Lower-Level Employees and Top Management: An Investigation of Distributive Justice Theory

Abstract

Douglas M. Cowherd University of Michigan David 1. Levine University of California, Berkeley The relationship between interclass pay equity and product quality is examined in a sample of 102 corporate business units. A small pay differential between lower-level employees and upper-echelon managers (after controlling for inputs) is theorized to lead to high product quality by increasing lower-level employees' commitment to top-management goals, effort, and cooperation. Interclass pay equity is determined by comparing the pay and inputs of hourly workers and of lower-level managers and professionals to those of the top three levels of managers. Consistent with the predictions of distributive justice theory, both measures of pay equity are positively related to business-unit product quality.'