The pay parity matrix − a tool for analysing the structure of pay

Abstract

This article introduces a new tool for measuring relative pay within organizations. We call this innovation the ‘Pay Parity (PP) matrix’, and discuss its advantages and useful properties. The PP matrix allows us to conveniently measure, and draw inferences about, the nature of the whole remuneration schedule, such as its gradient and smoothness. We illustrate the application of the PP matrix by using data on the remuneration of academic executives in universities.

Keywords:

• indexes of pay
• executive compensation
• matrix comparisons
• PP matrix

JEL Classification::

• C43
• C40

Acknowledgements

We thank Germaine Chin, Ze Min Hu and Thomas Simpson for excellent research assistance. We also thank Ze Min Hu, Paul Miller, Giri Parameswaran and Jiawei Si for helpful comments. In revising the article, we have benefitted from comments from an anonymous referee. This research was in part financed by the ARC and the Business School at UWA.

Notes

¹ The correlation matrix corresponding to takes the form so that each correlation is unity.

² The term ‘variance of ’ is to be interpreted as meaning the variance of the elements of this matrix, .

³ For details of the data, see Clements and Izan (2010).