Wide pay variance in accountancy not good for business

Vertical pay dispersion within an organisation, defined as the difference in pay across different levels in the hierarchy within an organisation, can have advantages – for example, in recruiting highly-skilled employees – but can also have a negative impact on employees’ budgeting decisions if it is significant. This is the finding of a new study which concludes that high dispersion in pay within an organisation motivates lower grade staff to misreport costs to a greater extent than is in the case in organisations with low vertical pay dispersion.

Further, managers are more lenient with cost control in organisations with high levels of pay dispersion ‘because of their aversion to inequity caused by vertical pay dispersion.’

The authors conclude:

‘High vertical pay dispersion can compromise the overall corporate budgeting environment, where higher levels of misreporting by subordinates goes unchecked by superiors.’

‘The effects of vertical pay dispersion: experimental evidence in a budget setting’, L Guo et al, Contemporary Accountancy Research: http://onlinelibrary.wiley.com/doi/10.1111/1911-3846.12245/full