Knowing Your Boss’s Salary Can Make You Work Harder — Or Slack Off
Read time: 2 min
Big Idea
Merit-based promotions and transparency about higher salaries improve performance in the public sector, but without a fully meritocratic system, revealing supervisor salaries can demoralize employees and decrease productivity.
Top Thoughts
Linking promotions to performance improves employee output and serves as effective motivation. A meritocratic structure maximizes the potential of already high-performing individuals and further improves performance.
Knowing a supervisor's salary can motivate or demoralize employees, depending on whether they believe they can reach that level of income. In systems where promotions are not merit-based, revealing higher supervisor salaries decreases morale and productivity.
Good internal communication and a corporate culture of fairness motivate employees and increase productivity.
Systemic biases and non-meritocratic promotions decrease motivation, morale, and performance, especially in minority groups.
Significant disparities between executive earnings and lower-level employee earnings negatively impact morale. Development opportunities and clear career paths within the organization boost motivation.
Quick Quotes
"For workers who were both under the new promotion system and learned what their bosses were making, performance improved, with the greatest increases coming from the top performers… However, for those who were not included in the new system tying promotions to performance, learning their supervisors’ salaries often led to poor morale and lower productivity."
“Companies tend to increase pay for higher-level workers without thinking about the effect it has on lower-tier workers… A system needs to be fully meritocratic for promotions and pay progression to motivate employees.”
"The promise of a potential promotion also seemed to provide a real motivation: workers who expected their supervisor to retire within the next two years increased their number of (healthcare worker) visits (target outcome) by 45 percent."
"The new meritocratic promotion system boosted the number of visits (target outcome) by 22 percent across both the group that learned their supervisor’s salary and the group that didn’t."
"Those who underestimated their supervisor’s pay, and then learned it was more than they thought, actually decreased their number of visits (target outcome) by 27 percent."
"If their hard work is not rewarded with a promotion, it could result in low morale and poorer performance."
Actionable Advice
Implement meritocracy and address systemic biases - Determine how promotions and raises are awarded to ensure they are equitable across gender and race. Meritocratic systems boost motivation and overall performance, particularly among top-performing employees.
Create clear career pathways - Ensure clear, communicative pathways and criteria for promotions and raises.
Review pay structures impact - Periodically assess and adjust pay and promotion structures to ensure fairness and optimize employee performance, morale, and retention.
Source(s)
Deserranno, E., Kastrau, P., & León-Ciliotta, G. (2023, Sep 1). Knowing Your Boss’s Salary Can Make You Work Harder—or Slack Off. [Web article]. Kellogg School of Management. (Link)
