Skip to Main Content
HBS Home
  • About
  • Academic Programs
  • Alumni
  • Faculty & Research
  • Baker Library
  • Giving
  • Harvard Business Review
  • Initiatives
  • News
  • Recruit
  • Map / Directions
Working Knowledge
Business Research for Business Leaders
  • Browse All Articles
  • Popular Articles
  • Cold Call Podcast
  • Managing the Future of Work Podcast
  • About Us
  • Book
  • Leadership
  • Marketing
  • Finance
  • Management
  • Entrepreneurship
  • All Topics...
  • Topics
    • COVID-19
    • Entrepreneurship
    • Finance
    • Gender
    • Globalization
    • Leadership
    • Management
    • Negotiation
    • Social Enterprise
    • Strategy
  • Sections
    • Book
    • Podcasts
    • HBS Case
    • In Practice
    • Lessons from the Classroom
    • Op-Ed
    • Research & Ideas
    • Research Event
    • Sharpening Your Skills
    • What Do You Think?
    • Working Paper Summaries
  • Browse All
    Knowing What Your Boss Earns Can Make You Work Harder
    08 Oct 2018Research & Ideas

    Knowing What Your Boss Earns Can Make You Work Harder

    by Rachel Layne
    Learning what your co-worker earns can make you less productive, but knowing your manager's paycheck can motivate you to work harder. Research by Zoë Cullen.
    LinkedIn
    Email
    francescoch

    Learning that a co-worker earns more than you can decrease your job performance while increasing the likelihood of you searching for a new job, according to a new research study.

    On the other hand, learning what your manager makes can prompt you to work harder.

    The results of the study were recently published in How Much Does Your Boss Make? The Effects of Salary Comparisons, co-written by Zoë B. Cullen, an assistant professor at Harvard Business School, and Ricardo Perez-Truglia, an assistant professor at UCLA’s Anderson School of Management.

    The findings are significant for employers, underscoring how changing the salary of one worker can affect the behavior of other employees. “These externalities can have important implications for the provision of incentives within the firm and for pay transparency,” the authors write.

    Cullen and Perez-Truglia conducted the field experiment with 2,060 workers at a large, multibillion dollar commercial bank with thousands of employees. The researchers examined a variety of information, including the number of emails sent and received over time and time-stamp data, to calculate the number of hours in the office on a daily basis, both of which helped signal how much effort individuals were putting into their job. They also studied compensation at all levels, including senior executives.

    Workers were surveyed on how much they thought, on average, peers and managers were making, and on their own pay and job satisfaction. To make sure employees were being honest in their beliefs about others’ compensation, the researchers, working with the bank’s HR department, offered monetary rewards for employees who accurately guessed the average salaries of others. They found that less than a third were able to guess the answer within 5 percent of the truth, despite sizable rewards.

    Unexpected results

    The research results were sometimes counterintuitive, Cullen says. For example, employees worked harder after discovering how much their managers made. For every 1 percent higher in the perceived salary of a manager, employees clocked 0.15 percent more hours.

    But the employees’ extra effort diminished as the difference in rank between employee and manager widened. In some cases, “We were looking at how employees responded to managers who were five promotions away and who they explicitly thought were in positions they themselves would never achieve,” Cullen says. In those cases, the work-harder reaction was much smaller but did not become negative.

    When employees received salary information about managers who were closer to their own rank, they may have found the salary difference aspirational—just a promotion or two away, she says.

    A different reaction

    While knowledge of managerial compensation seemed to coax more effort out of workers, the exact opposite happened when employees learned what peers were making.

    For every 1 percent higher salary a co-worker earned over the employee’s expectation, they worked 0.94 percent fewer hours, the researchers found.

    In a global environment where companies are scrambling to find qualified workers to fill vacancies, another important finding emerged. When an employee learned a co-worker’s salary was 1 percent higher than estimated, chances rose by 0.225 percent that they’d leave the company.

    The researchers made other discoveries as well, which might have something to say about wage inequality and widening pay gaps in corporations. The findings suggest:

    • “Female employees may be able to tolerate being paid less than male employees as long as the male employees hold a different position,” the authors write. “This phenomenon may explain why the gender wage gap is large in the vertical [top-to-bottom] margin but small in the horizontal [peer-to-peer] margin.”
    • Social forces may not be as effective as thought in moderating pay inequality within companies. “While this channel may force firms to reduce horizontal inequality, firms do not face resistance to increasing vertical inequality.”
    • Transparency policies, such as disclosure of CEO pay, “may be less effective at curbing inequality than previously thought.”

    Implications for employers

    The researchers’ findings could convince some companies to rethink the equity of their own compensation plans and the level of salary transparency they wish to maintain.

    For example, it may be more effective to structure pay raises based on promotion rather than on performance among peers. Employers could then provide incentives to work toward promotion rather than for salary increases under the same job title.

    “Just having a title difference or responsibility difference is enough for people to think very differently about the [salary] comparison,” Cullen says.

    Rachel Layne is a writer based in the Boston area.

    Related Reading:

    Should Companies Disclose Employee Compensation?
    Working for a Shamed Company Can Hurt Your Future Compensation
    Research Paper The Psychological Costs of Pay-for-Performance: Implications for Strategic Compensation

    What do you think of this research?

    Share your insights below.

    Post A Comment
    In order to be published, comments must be on-topic and civil in tone, with no name calling or personal attacks. Your comment may be edited for clarity and length.
      Trending
        • 16 Mar 2023
        • Research & Ideas

        Why Business Travel Still Matters in a Zoom World

        • 01 Mar 2023
        • What Do You Think?

        How Much Does 'Deep Purpose' Matter to the Bottom Line?

        • 14 Mar 2023
        • In Practice

        What Does the Failure of Silicon Valley Bank Say About the State of Finance?

        • 13 Mar 2023
        • Op-Ed

        How Leaders Should Leave

        • 25 Jan 2022
        • Research & Ideas

        More Proof That Money Can Buy Happiness (or a Life with Less Stress)

    Zoe B. Cullen
    Zoe B. Cullen
    Assistant Professor of Business Administration
    Contact
    Send an email
    → More Articles
    Find Related Articles
    • Equality and Inequality
    • Compensation and Benefits
    • Motivation and Incentives

    Sign up for our weekly newsletter

    Interested in improving your business? Learn about fresh research and ideas from Harvard Business School faculty.
    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
    ǁ
    Campus Map
    Harvard Business School Working Knowledge
    Baker Library | Bloomberg Center
    Soldiers Field
    Boston, MA 02163
    Email: Editor-in-Chief
    →Map & Directions
    →More Contact Information
    • Make a Gift
    • Site Map
    • Jobs
    • Harvard University
    • Trademarks
    • Policies
    • Accessibility
    • Digital Accessibility
    Copyright © President & Fellows of Harvard College