“Firms may want tomotivate employees with the prospect of a higher salary uponpromotion rather than through performance pay,” recommendexperts. (Photo: Shutterstock)

People tend to be motivated to work harder when they learn how much theirboss makes – but if their coworkers make morethan them, they can become so resentful that they start slacking off, according to the study, “How Much Does Your Boss Make? The Effects ofSalary Comparisons.”

Harvard Business School assistant professor Zoe Cullen andRicardo Perez-Truglia, assistant professor at University ofCalifornia, Los Angeles, conducted a field experiment with 2,060employees from a multi-billion dollar corporation, and found thatperceived peer and manager salaries have a significant causaleffect on employee behavior. While higher perceived peer salarydecreases effort, output and retention, higher perceived managersalary has a positive effect on those same outcomes.

Related: Employee motivation: What money can'tbuy

It could be that employees only care about their standing inrelation to their peers. An alternative explanation could be that,given that everyone has the same powers and responsibilities, theyperceive these salary differences as unfair and aredemoralized, according to the researchers.

“Employees may find it easier to justify vertical inequality —for instance, they may think that the manager deserves the highersalary because she adds more value to the firm or because she hasto deal with more stress,” they write. “Firms may want to motivateemployees with the prospect of a higher salary upon promotionrather than through performance pay.”

Salary transparency is a complicated issue, says human resourcesexpert Rob Wilson, president of Employco USA, an employmentsolutions firm.

“The truth is that there won't be a one-size-fits-all approachthat works for every company, but there are a few basic things thatevery employer should know,” Wilson says.

First, employees actually like to know that their boss is doingwell financially.

“If the top tier people are struggling financially, that canmake employees insecure and unmotivated,” he says. “Employees wantto feel like they are being led by someone who is doing well forhimself or herself. This is both aspirational and comforting, asthey know that the company is in good hands and has a solidfuture.”

However, Wilson says that salary transparency among coworkerscan become problematic.

“If an employee finds out that their coworker is making moremoney than them, but yet they are always slacking off or showing uplate, that can really breed resentment and dissatisfaction,” hesays. “So while salary transparency may make some people happy, itcan cut both ways. If you want to make salaries transparent, firstyou really want to make sure that all of your workers are beingfairly compensated and that there is no nepotism or poor behaviorthat is being rewarded.”

Ultimately, Wilson says that salary transparency should be ledfrom the top-down.

“As this study shows, employees benefit more from knowing whattheir leaders make,” he says. “They want that inspiration. It ismotivating and encourages them to work hard, whereas competing withthe guy in the cubicle next to them can have the opposite result.So when it comes to talk of salaries, maybe be willing to show yourown hand, rather than encouraging open talk among workers.”