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

105 Pages Posted: 29 Jun 2018 Last revised: 22 Aug 2018

See all articles by Zoe Cullen

Zoe Cullen

Harvard Business School

Ricardo Perez-Truglia

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 20, 2018

Abstract

We study how employees learn about the salaries of their peers and managers and how their beliefs about those salaries affect their own behavior. We conducted a field experiment with a sample of 2,060 employees from a multi-billion dollar corporation. We combine rich data from surveys and administrative records with data from the experiment, which provided some employees with accurate information about the salaries of others. First, we document large misperceptions about salaries and identify some of their sources. Second, we find that perceived peer and manager salaries have a significant causal effect on employee behavior. These effects are different for horizontal and vertical comparisons. While higher perceived peer salary decreases effort, output, and retention, higher perceived manager salary has a positive effect on those same outcomes. We provide suggestive evidence for the underlying mechanisms. We conclude by discussing implications for pay inequality and pay transparency.

Keywords: salary, comparisons, inequality, transparency

JEL Classification: J31, J38, M12, M52, Z13

Suggested Citation

Cullen, Zoe and Perez-Truglia, Ricardo, How Much Does Your Boss Make? The Effects of Salary Comparisons (June 20, 2018). Available at SSRN: https://ssrn.com/abstract=3200136 or http://dx.doi.org/10.2139/ssrn.3200136

Zoe Cullen

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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

Ricardo Perez-Truglia (Contact Author)

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

HOME PAGE: http://www.anderson.ucla.edu/perez-truglia

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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