Organizational Pay Mix: The Implications of Various Theoretical Perspectives for the Conceptualization and Measurement of Individual Pay Components

While pay mix is one of the most frequently used variables in recent compensation research, its theoretical relevance and measurement remains underdeveloped. There is little agreement among studies on the definitions of the various forms of pay that go into pay mix. Even studies that examine the same theories tend to overlook the implications of differences in the measures and meanings of pay mix used in other studies. Our study explores the meaning of pay mix using several theories commonly used in recent compensation research (agency, efficiency wage, expectancy, equity, and person-organization fit). Recent studies generally use a single measure of mix (e.g., bonus/base, or stock options/total, or benefits/base). We argue that to fully understand the effects of employee compensation, the multiple forms of compensation must be taken into account. Therefore, we derived pay mix measures from the theories commonly used in compensation research. We classified the pay mix policies of 478 firms using cluster-analytic techniques. We found that the classification of organizations based on their pay mix depends on the measures used. We suggest that as more realistic measures of pay mix leads to reinterpretation of compensation research and offers directions for theory development.