Abstract

The paper introduces indices to measure the concepts of internal, employee, and external equities in social psychology. The unbalanced panel data of Chinese Professional Baseball League (CPBL) for the year 1990 to 2007 are employed to examine the relationships between salary dispersions and corresponding performance. The empirical evidence shows that payroll has a significant and positive effect on team performance. It indicates that the expenditure on human capital induces more wins in the CPBL. In addition, the measure of internal equity has an insignificant effect on performance. The results of internal equity do not support equity theory. The effect of employee equity for pitchers is significantly negative for team performance. The external equity is significant for team performance, but the evidence is very limited. The empirical evidence shows that the degree of employee equity for pitchers negatively contributes to teams’ performance, but not for hitters. This discrepancy reflects the difference in cooperation requirements of different positions. The implication for team managers is that tournament-like compensation is suitable for pitchers but not for hitters.

Key words: Employee equity, external equity, internal equity, professional baseball, team performance, tournament theory.