Salary disparities on NBA teams can lead to victory

10/27/2011 - Disparities between the highest-paid basketball players and their lower-paid teammates often lead to negative headlines about high NBA salaries.

But, in fact, these hierarchies can help propel professional basketball teams to victory, according to a new study from the Kellogg School of Management and the Stanford Graduate School of Business.

Professional basketball teams require high levels of coordination to be successful, as players depend on each other for getting open shots and playing team defense. Hierarchy can promote coordination and enhance cooperation on teams, the authors say.

“We view procedural interdependence as a critical factor that creates a need for hierarchy. Thus, we predicted that hierarchy in the NBA would relate positively to team performance,” said Adam Galinsky, the Morris and Alice Kaplan Professor of Ethics and Decision in Management at Kellogg. “This is in stark contrast to professional baseball, which is much more of an individual game requiring minimal team interdependence. Indeed, prior research on major league baseball found that pay disparities had a negative effect on on-field performance and revenues.”

The research examined data from NBA teams between 1997 and 2007, looking at pay dispersion, starting lineup dispersion and playing-time dispersion to measure hierarchy. They studied team performance as measured by the team’s winning percentage. The authors also tested intragroup coordination and cooperation by looking at assists, turnovers, defensive rebounds and field-goal percentage.

“Pay dispersion and starting lineup dispersion were significant predictors of increased intragroup coordination and cooperation, and enhanced the performance of professional basketball teams,” said lead author Nir Halevy, acting assistant professor of organizational behavior at the Stanford Graduate School of Business.

Interestingly, while differentiating among a team’s players in terms of playing time also contributed to a team’s success, it was not associated with cooperation and coordination within teams. “People who get paid more may demand the status of starting and the prestige that results – starters receive elaborate introductions set to blaring music while getting high-fives and chest bumps from teammates,” said Galinsky. “Playing time is more tactical, depending on which players are contributing the most during a given game.”

Whether members of a team or group view a hierarchy as legitimate is a key factor.
“In a team environment where players are dependent on each other, they may see hierarchy as both legitimate and fair, which is likely to make the hierarchy function effectively,” said Galinsky.

“While some team members are paid more and have more opportunities to influence the group, in the end, all the members of a team win or lose together,” Halevy added.

In addition to Halevy and Galinsky, the study’s authors include Kellogg’s J. Keith Murnighan, the Harold H. Hines Jr. Distinguished Professor of Risk Management, and Eileen Chou, a PhD student of management and organizations. The study, entitled “When Hierarchy Wins: Evidence From the National Basketball Association,” will be published in a forthcoming issue of Social Psychological and Personality Science.