1. International Association of Sports Economists (IASE) 10th Annual Meeting May 10, 2008 The Effects of Equities on Organizational Performance: A Panel Analysis Wen-Jhan Jane Dept. of Economics, Shih Hsin University Email: wjjane@cc.shu.edu.tw Wen-Jhan Jane Dept. of Economics, Shih Hsin University Email: wjjane@cc.shu.edu.tw

2. The Effects of Equities on Organizational Performance 1/16 1. Abstract Equity Organizational performance There are two opposite hypotheses about the relation, one is the “wage compression” and another is “wage dispersion” hypothesis Internal equity External equity Employee equity Wage dispersion (Var.) Team’s on-field performance Individual Wage

3. The Effects of Equities on Organizational Performance 2/16 2. Introduction Akerlof and Yellen (1988 1990) and Lazear (1989): wage gaps breakdown in team cohesiveness, which will hamper performance.  Wage compression (equity) Lazear and Rosen (1981): the wider the wage gap between members within an organization is, the better will be the performance.  Wage dispersion (tournament) Theory

4. The Effects of Equities on Organizational Performance 3/16 Empirical Evidences in Sports Economics Support Wage compression: Support Wage compression: Bloom (1999), Depken (2000), Richards and Guell (1998), Jewell and Molina (2001), Pfeffer and Langton (1993), and DeBrock et al (2004) etc. Support Wage dispersion: Support Wage dispersion: Becker and Huselid (1992), Ehrenberg and Bognanno (1990), Melton (2000), Sunde(2003) etc. 2. Introduction

5. The Effects of Equities on Organizational Performance 4/16 Empirical Evidences Mixed evidences: Mixed evidences: Interleague researches include Frick, Prinz and Winkelmann (2003;NBA, NHL, NFL, MLB) and Jewell and Molina (2004;MLB, NBA) 2. Introduction Neither the policy of compression or dispersion is fully supported for professional sports teams.

6. 20/33 The Effects of Equities on Organizational Performance 5/16 Equity theory states that employees examine their input and output and judge fairness by comparing them to the input and output of a referent other (Adams, 1963). Equity theory states that employees examine their input and output and judge fairness by comparing them to the input and output of a referent other (Adams, 1963). Employees who perceive that they are either under or over compensated in terms of salary will experience inequity tension. Such tension motivates employees to alter their input and output, or cause them to leave the workplace (Mowday; 1983). Employees who perceive that they are either under or over compensated in terms of salary will experience inequity tension. Such tension motivates employees to alter their input and output, or cause them to leave the workplace (Mowday; 1983). Employee equity is the same job comparison in the same team. Employee equity is the same job comparison in the same team. 3. External, Internal and Employee Equity Organization The sameDifferent Position The sameEmployee equityExternal equity DifferentInternal equityX

7. The Effects of Equities on Organizational Performance 6/16 Equity measurement IEThe measurement of internal equity*The coeff. of var. for players’ salary in a team EmpEH*The meas. of employee equity between hitters* The coeff. of var. for hitters’ salary in the same team EmpEPThe meas. of employee equity between pitchers* The coeff. of var. for pitchers’ salary in the same team ExtEHExternal equity between hitters*The coeff. of var. for hitters from other teams ExtEPExternal equity between pitchers*The coeff. of var. for pitchers from other teams For measuring employee and external equity, the players are divided into two groups --- pitchers and hitters. 3. The Mesurement of the External, Internal and Employee Equity

8. The Effects of Equities on Organizational Performance 7/16 4. Data Description and Empirical Methodology I collected the panel data of salary and performance for 314 hitters and 162 pitchers on 7 teams for the years 1990 through 2000[1].[1] The fixed effects empirical model is specified as follows: [1][1] The data were obtained from “Professional Baseball” and the website of the CPBL. http://www.cpbl.com.tw

9. The Effects of Equities on Organizational Performance 8/16 Table 1. Descriptive Statistics of the Data from 1990 to 2000 VariableDescriptionMeanStd. Dev.Min.Max. WinP Winning percentage for each team in each year.5021.0904.289.727 WinN Wins for each team in each year 45.67248.85832864 TSal Total salary for each team* 5.665024.21.033187 TSalH Hitters’ total salary for each team in each year* 3.907724.3.177186 TSalP Pitchers’ total salary for each team in each year* 1.75736.2500.5393.22 Equity measurement IE The measurement of internal equity* 4180354090.715100 EmpEH * The meas. of employee equity between hitters* (the coeff. of var. for hitters in the same team) 3700338010212100 EmpEP The meas. of employee equity between pitchers* (the coeff. of var. for pitchers in the same team) 5080666031.929100 ExtEH External equity between hitters* (the coeff. of var. for hitters in other teams) 383030203.299630 ExtEP External equity between pitchers* (the coeff. of var. for hitters in other teams) 5930508016616600 + or - Note: * million +

10. The Effects of Equities on Organizational Performance 9/16 5. Empirical Results and Discussions Unbalanced panel data  Hausman (1978) tests are used to investigate whether the model suits fixed effect or random effect. We only list the results of those which the test supports in the table. Notes: *, ** and *** indicates that the level of significance is 10%, 5% and 1% respectively. VariableDependent Variable: WinPDependent Variable: WinN CoefficientStandard errorCoefficientStandard error Internal Equity TSal.0039.0183.02551.7517 IE.0354*.01873.3946*1.7904 Time-.0128.0081-.6778.7947 Intercept25.308415.67671324.2261547.133 Hausman test (Chi 2 value) 3.11369.00 Support RE model Support FE model

11. The Effects of Equities on Organizational Performance 10/16 VariableDependent Variable: WinPDependent Variable: WinN CoefficientStandard errorCoefficientStandard error Employee Equity TSalP-.0101.0143-1.07241.3219 TSalH.1223**.055611.6605**5.1465 EmpEP.0219*.01212.4758**1.1161 EmpEH-.0127.0216-.23471.9981 Time-.0156**.0077-1.4198**.7125 Intercept29.8696**14.83082677.984*1373.05 Hausman test (Chi 2 value) 5.953.42 Support RE model Notes: *, ** and *** indicates that the level of significance is 10%, 5% and 1% respectively. Match! 5. Empirical Results and Discussions

12. The Effects of Equities on Organizational Performance 11/16 Notes: *, ** and *** indicates that the level of significance is 10%, 5% and 1% respectively. VariableDependent Variable: WinPDependent Variable: WinN CoefficientStandard error CoefficientStandard error External Equity TSalP-.0106.01400-.98221.3378 TSalH.1300**.051112.7875***4.8826 ExtEP-.0279.0244.05302.3290 ExtEH.0017.0044.2695.4228 Time-.0028.0109-.89541.0460 Intercept4.865121.15551655.4732021.694 Hausman test (Chi 2 value)9.439.76 Match! Support RE model 5. Empirical Results and Discussions

13. The Effects of Equities on Organizational Performance 12/16 5. Conclusion This paper employs two indices of salary dispersion to measure the concepts of employee and external equity. For a team’s expenditures in salary, the empirical evidence indicates that more expenditure of salary for hitters increases the team’s performance. Wage disparity: IE, EmpEP Organizational performance in CPBL Salary: TSalH + + Any differences may be due to the different cooperation requirements between pitchers and hitters. That is, the structure of baseball game requires each hitter’s output to be connected with that of other hitters, but this is far less the case amongst pitchers. For WD, the incentive is evident in pitchers, but the effect of salary dispersion among hitters cannot be tested in the empirical results presented here.

14. The Effects of Equities on Organizational Performance 13/16 5. Conclusion Therefore, the cooperation requirement for hitters weakens the effect of tournament. As such, the salary policy between pitchers suits the tournament-like pecuniary compensation but the hitters’ mechanism of tournament is dominated by the feelings of fairness, morale and cohesiveness.

15. 1/32 Thank you for your attention The Effects of Equities on Organizational Performance International Association of Sports Economists (IASE) 10th Annual Meeting

16. Except the explanation of the different cooperation requirement between players’ positions, another concern for the necessity of the structure of dispersed salary may be the international competition between leagues. The competitor like Major League Baseball (MLB) or Nippon Professional Baseball (NPB) recruits top players by offering relatively abundant payment. Empirical evidences supported the dispersed salary augment is different to previous literatures on professional baseball. 5. Conclusion The Effects of Equities on Organizational Performance 14/16

17. Therefore, team managers in CPBL naturally offer these minority players more payment for keeping them in their teams, especially for best pitchers. The force outside the league may also distort the structure of salary, and further, it induces the relationship between salary dispersion and team performance. 15/16 The Effects of Equities on Organizational Performance 5. Conclusion