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

The vast majority of the pay inequality in organizations 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 document large misperceptions among employees about the salaries of their managers and smaller but still significant misperceptions of the salaries of their peers, and we show that these perceptions have a significant causal effect on the employees’ own behavior.