How Much Does Your Boss Make? The Effects of Salary Comparisons / Zoë Cullen, Ricardo Perez-Truglia.

Format:

Book

Author/Creator:

Cullen, Zoë.

Contributor:

National Bureau of Economic Research.

Perez-Truglia, Ricardo.

Series:

Working Paper Series (National Bureau of Economic Research) no. w24841.

NBER working paper series no. w24841

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2018.

Summary:

The vast majority of the pay inequality in organizations comes from differences in pay between employees and their bosses. But are employees aware of these pay disparities? Are employees demotivated by this inequality? To address these questions, we conducted a natural field experiment with a sample of 2,060 employees from a multibillion-dollar corporation in Southeast Asia. We make use of the firm's administrative records alongside survey data and information-provision experiments. First, we document large misperceptions among employees about the salaries of their managers and smaller but still significant misperceptions of the salaries of their peers. Second, we show that these perceptions have a significant causal effect on the employees' own behavior. When they find out that their managers earn more than they thought, employees work harder on average. In contrast, employees do not work as hard when they find out that their peers earn more. We provide suggestive evidence of the underlying causal mechanisms, such as career concerns and social preferences. We conclude by discussing the implications of pay inequality and pay transparency.

Notes:

Print version record

July 2018.