Will You Be More Productive If You Know How Your Pay Compares With Your Colleagues'?

Will you work harder and produce more if you know not only how productive you are compared to your colleagues but what your colleagues are getting paid? The answer is yes, according to a paper by two academics at the London School of Economics, Jordi Blanes i Vidal and Mareiki Nossol.

The paper ran a year ago in the journal Management Science and was highlighted yesterday in an item on the Harvard Business Review’s blog, The Daily Stat. The paper examines a German wholesaler that gave its warehouse workers information on both their relative performance vis a vis other workers, and their relative pay. Once they had that information, workers’ productivity increased by 6.8%

The paper is worth considering, given that in many U.S. workplaces, both bosses and employees rarely discuss pay or productivity relative to other workers. We may have performance reviews and discussions about raises or bonuses, but generally our performance is judged based on what we have done in the past. In other words, we are compared with ourselves, not others.

In the paper, called “Tournaments Without Prizes: Evidence from Personnel Records,” the authors examined data from the main warehouse of a German wholesale and retail operation. They looked at 65 workers who were performing the core work of the warehouse, picking up customer orders, gathering together the goods, packing them onto a hand truck and moving it to the area where the products could be picked up. The workers got paid by three criteria. One was a fixed salary amount, another was based on the quantity of goods they moved and the third, on a more amorphous “quality” standard. The authors note that these are dead-end jobs because the skills don’t transfer to other positions at the firm. Of 207 people who had the job over 10 years, only two were ever promoted. So career advancement was not a motivation.

In the summer of 2001, a few members of the non-unionized workforce asked management for information about the wage per hour earned by the average worker. One interesting fact: two workers who had been complaining constantly about the conditions on the job and riling up other workers were among the worst performers, so management thought that giving them the information might get them to change their behavior.

Management decided to tell each worker where they ranked in both wages and productivity, compared with other workers at the warehouse. Workers didn’t get specific information on colleagues’ pay, but they did learn where their pay ranked within the range for their job.

The bosses gave the workers the news that they would receive this information a month before they shared the data. The workers’ productivity increased by 2.8% as soon as they found out they would get the productivity and wage information. According to the paper’s authors, this is probably because as soon as they knew they would get this data, workers became concerned about how they would rank, and immediately started performing better. Once they had the information, their productivity increased by another 4%.  One other interesting finding: the results were consistent across the workforce, with almost no workers decreasing their efforts at any stage.

In the paper’s final analysis, the authors volunteer several caveats. They acknowledge that they have measured only one unique workplace, where employees work solo rather than on teams. Workers who don’t like their relative performance and pay have only one way to change, through their own efforts. The authors acknowledge that their analysis applies more to workers in singular pursuits, like salespeople who work on their own, as opposed to, say, corporate lawyers, who often collaborate. They also note that management gave the information to each worker privately. What would happen if management made the information public?

Here on the Forbes editorial team, we don’t have a formal performance review system or even regular salary reviews. But since we established our blogging platform two years ago, we do have concrete information about how our pieces perform relative to our colleagues, in the form of a page view number at the top of every post. That number is there for everyone to see, including readers and colleagues. When I notice that other writers are generating far more views than I am, it motivates me to produce more solid, reader-friendly copy and to get my own page views up. (Of course page views aren’t the only thing we consider in a writer’s performance and journalism isn’t as quantifiable as a warehouse job.)

I’m not sure how I would feel if I knew where I ranked on the writer pay scale here. Would it make me work harder if I learned that I was low on the ladder, or closer to the top? How comparable is work in a warehouse with other jobs? The authors don’t answer those question but they do present some hard data about a what happens when management gives workers meaningful information about pay and productivity.