Ever looked at your workplace’s org chart and speculated about how much money the people above you are making?

It’s natural to wonder, especially in organizations where bonuses are rare and promotions are the surest (or only) path to a bigger paycheck.

Learning your boss was making more than you thought would motivate you to work hard and climb the ladder—right?

Not necessarily, according to some interesting new research from Erika Deserranno, an associate professor of managerial economics and decision sciences. Certainly, knowing your superior’s salary can act as an enticement, Deserranno and her colleagues found, but only if you think you have a fair shot at getting promoted yourself.

This week: unweaving the tangled web of promotions, meritocracy, and pay.

The potential promise of promotion

Deserranno teamed up with Philipp Kastrau of IDinsight and Gianmarco León-Ciliotta of Pompeu Fabra University to conduct an experiment on a relatively new community health program run by Sierra Leone’s Ministry of Health and Sanitation aimed at addressing the country’s high maternal-mortality and child-mortality rates.

The program instituted regional health units staffed with doctors and nurses, as well as a group of 8 to 10 community health workers and one peer supervisor. The workers earn about $17.50 a month in their role, while supervisors earn about $29.20—67 percent more than the workers.

Supervisor positions only open up when supervisors retire and are filled by one of the community health workers in the group. But those coveted promotions have usually been given not to the top performer, but rather to whomever is best connected to the head of the regional health unit.

To find out if changing the promotion system from cronyism to a meritocracy would improve employee performance, the researchers randomly assigned more than 2,000 community health workers into one of four groups within the experiment. Half the health workers were told they’d be part of a new meritocratic system in which promotions to supervisor would be tied to performance, while the other half remained within the existing system. Within these two groups, half of the community workers were told about their supervisor’s salary, while the other half weren’t.

Deserranno and her colleagues found that the new meritocratic promotion system boosted performance across the board, in both the group that learned their supervisor’s salary and the group that didn’t. The improvements were especially pronounced among the top-performing workers, as ranked by their supervisors, who increased their number of household visits by 38 percent. The promise of a potential promotion also seemed to provide real motivation: workers who expected their supervisor to retire within the next two years increased their number of visits by 45 percent.

Meanwhile, the knowledge of supervisor salary had mixed effects under the old non-meritocratic system. Workers’ expectations of their supervisors’ salaries proved to be important: Those who overestimated it or who guessed right didn’t change their patterns. But those who underestimated their supervisor’s pay, and then learned it was more than they thought, actually decreased their number of visits by 27 percent.

“They’re mad,” Deserranno says. “They think … there is no way for them to get a supervisor job by performing more.”

Why meritocratic promotions matter

Though the experiment took place in a very specific context, the implications are wide-ranging, including for the U.S. Since women and people of color are less likely to be promoted, even when they are high-performing, they are more likely to view the system as non-meritocratic. If their hard work is not rewarded with a promotion, it could result in low morale and poorer performance.

Having a wide salary gap between bosses and workers can hurt organizations—in the U.S. and elsewhere—as well. The difference between what a CEO makes and what an average worker makes is ever-increasing, but even less-stark disparities can have negative effects. If a middle manager’s employees find out their boss is significantly outearning them, it could lower morale—unless they believe their organization is truly meritocratic and they have a realistic possibility of advancement.

“If you increase pay for the boss, that’s good for the boss, but the people at the bottom will be mad,” Deserranno says. “If the system is not meritocratic, it can backfire.”

You can read the whole article here.

See you next week!

Susie Allen, senior research editor
Kellogg Insight