How Much Does Your Boss Make? The Effects of Salary Comparisons

57 Pages Posted: 1 Aug 2018 Last revised: 17 May 2021

See all articles by Zoe Cullen

Zoe Cullen

Harvard University - Business School (HBS)

Ricardo Perez-Truglia

University of California, Berkeley; National Bureau of Economic Research (NBER)

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Date Written: July 2018

Abstract

The vast majority of the pay inequality in an organization 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.

Suggested Citation

Cullen, Zoe and Perez-Truglia, Ricardo, How Much Does Your Boss Make? The Effects of Salary Comparisons (July 2018). NBER Working Paper No. w24841, Available at SSRN: https://ssrn.com/abstract=3218071

Zoe Cullen (Contact Author)

Harvard University - Business School (HBS) ( email )

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Morgan 270C
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United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=879471

Ricardo Perez-Truglia

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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