Abstract: Innovation is the first driving force to lead development as well as the inevitable requirement of building a great modern socialist country.With Chinese economy entering a high-quality development stage,there is an urgent need for innovation.And organizational innovation is the main body of innovation.How to stimulate organizational innovation has attracted wide attention.Can the pay differential system,as a common incentive tool for organizations,effectively promote innovation？Extant results are far from consistent.This paper has pointed that the previous studies generally ignored the risks of innovation activities in their explanation of possible outcomes and the current theories have great difficulty in explaining the inverted U-shaped relationship between pay dispersion and organizational innovation.Based on the risk-sensitivity theory,the paper puts forward the idea that the increased pay dispersion will raise the level of human needs and that pay dispersion will promote organizational innovation when the pay dispersion is small and the benefits of innovation can meet the level of needs,while pay dispersion will inhibit organizational innovation when the pay dispersion is too large and the benefits of innovation cannot meet the level of needs.Besides,the practical implications and future research directions have been discussed.

Key words: pay dispersion, organizational innovation, the risk-sensitivity theory, the tournament theory, the social comparison theory