"The Lake Wobegon Workplace"
David Card, Alexandre Mas, Enrico Moretti, and Emmanuel Saez demonstrate that most people think they’re above average and get really pissed when they find out their bosses think otherwise:
Economists have long speculated that individuals care about both their absolute income and their income relative to others. We use a simple theoretical framework and a randomized manipulation of access to information on peers’ wages to provide new evidence on the effects of relative pay on individual utility. A randomly chosen subset of employees of the University of California was informed about a new website listing the pay of all University employees. All employees were then surveyed about their job satisfaction and job search intentions. Our information treatment doubles the fraction of employees using the website, with the vast majority of new users accessing data on the pay of colleagues in their own department. We find an asymmetric response to the information treatment: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected. Our findings indicate that utility depends directly on relative pay comparisons, and that this relationship is non-linear.
The upshot for managers seems to be that an inefficiently undifferentiated compensation structure is sometimes the appropriate solution since making more fine-grained distinctions is going to do more to piss-off the non-rewarded than the reward the people you’re trying to reward.
But what these kind of findings always make me wonder is how possible is it for people to self-consciously reform their thinking around this kind of question. I myself have been known to get peeved when something good happens to someone else even though I in no way suffer as a result. But I also recognize that emotions in this spite/envy/bitterness conceptual space are irrationally and ethically ugly and try to rid myself of them. Is this something society as a whole can get better at over time?