The Impact of Supervisor Salaries on Work Performance: Meritocracy and Pay Progression

In both private and public sectors, the use of incentives and threats to enhance motivation and performance can vary. While private-sector organizations often rely on performance-based pay, public-sector managers face challenges in implementing such systems. Instead, they often incentivize workers through promotion opportunities. Erika Deserranno, an associate professor at Kellogg, conducted an experiment to investigate the effectiveness of this approach and the impact of supervisor salaries on work performance.

Testing a Meritocratic Promotion System

Deserranno collaborated with Philipp Kastrau and Gianmarco León-Ciliotta to study a community health program in Sierra Leone. They introduced a new promotion system that linked promotions to performance and examined the effects of workers learning their supervisors' salaries. The results provided valuable insights into the relationship between pay progression, meritocracy, and employee motivation.

Positive Effects of Meritocratic Promotion

For workers included in the new promotion system and aware of their supervisors' salaries, performance significantly improved. The greatest increases were observed among top-performing workers. The promise of a potential promotion motivated workers, leading to a 22% increase in the number of visits and a 15% increase in visit duration. Those who underestimated their supervisors' pay and later discovered the truth also showed increased motivation, with a 23% rise in visits.

Negative Effects of Non-Meritocratic Systems

In contrast, workers who were not included in the meritocratic promotion system but learned their supervisors' salaries experienced poor morale and lower productivity. Those who underestimated their supervisors' pay and discovered it to be higher than expected decreased their number of visits by 27%. This dissatisfaction with pay progression and the absence of a meritocratic system had a significant impact on worker motivation.

Implications for the Public and Private Sectors

These findings have implications beyond the public sector, highlighting the importance of meritocracy and pay progression in motivating employees. In the private sector, where gender and race gaps in promotion persist, the lack of a truly meritocratic system can lead to decreased motivation among women and non-white workers. Additionally, significant salary disparities between bosses and workers can negatively affect morale, unless employees believe in a meritocratic system and have realistic opportunities for advancement.

Creating a Meritocratic System

To foster a motivated workforce, organizations must ensure that promotions and pay progression are based on merit. Meritocracy should be the guiding principle, avoiding disparities that can demoralize employees. By establishing fair and transparent systems, organizations can incentivize strong performance and create a positive work environment. In conclusion, the study highlights the importance of meritocracy and pay progression in motivating employees. A meritocratic promotion system, coupled with reasonable salary differentials, can drive performance and prevent negative repercussions. Whether in the public or private sector, organizations must prioritize fairness and transparency to create a motivated and productive workforce.

Implications of Supervisor Salaries and Meritocracy on US Business Market and New Companies

The research conducted by Erika Deserranno and her colleagues on the impact of supervisor salaries and meritocratic promotion systems offers critical insights that can significantly influence the US business market and newly formed companies. The study's findings underscore the importance of meritocracy and pay progression in motivating employees, which is a crucial aspect for any business, especially startups that heavily rely on their workforce's productivity and motivation.

Adopting Meritocracy in Business

In the competitive business landscape, companies, particularly new ones, must ensure that their promotion and pay progression systems are based on merit. This approach not only incentivizes strong performance but also fosters a positive work environment. However, the study reveals that significant salary disparities between bosses and workers can negatively impact morale, unless employees believe in a meritocratic system and see realistic opportunities for advancement.

Addressing the Gender and Race Gaps

The research also highlights the persisting gender and race gaps in promotion within the private sector. This lack of a truly meritocratic system can lead to decreased motivation among women and non-white workers. Therefore, businesses, especially new companies, must prioritize fairness and transparency to create a motivated and productive workforce. In conclusion, adopting a meritocratic promotion system and maintaining reasonable salary differentials can drive performance and prevent negative repercussions. The insights from this research can guide businesses in their strategic planning and decision-making processes, ultimately contributing to their success and growth.
Original Story By: Kellogg School of Management at Northwestern University
Originally Published at: https://insight.kellogg.northwestern.edu/article/knowing-your-bosss-salary-can-make-you-work-harder

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