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

50 Pages Posted: 1 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: July 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.

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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 Business School ( email )

Soldiers Field Road
Morgan 270C
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HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=879471

Ricardo Perez-Truglia

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

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Los Angeles, CA 90095
United States

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

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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