1. Running Header: EFFECT OF PEER SALARY INFORMATION ON JOB SATISFACTION 1
Effect of Peer Salary Information on Job Satisfaction
Kay Davonne Wakeham
University of Incarnate Word

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Citation
Card, D., Mas, A. Moretti, E. and Saez, E. B. (2012). Inequality at Work: The Effect of Peer
Salaries on Job Satisfaction. American Economic Review 102(6) 2981-3003.
Major Thesis
This study by Card, Mas, Moretti and Saez (2012) focuses on the impact of disclosing
information on peers’ salaries on workers’ job satisfaction as well as job search intentions. Their
research methodology included a random sample of employees at the University of California
(UC) that were matched to data on their earnings. According to Card et al. a subset of workers
referred to as “treated” were informed about a website listing the pay of University employees,
including their peers. Another subset of employees, the control group, were given information
about a UC website that had salaries for only the top administrators and no peer pay information
(Card et al.) Of the subset of “treated” employees, workers with salaries below the median for
their pay unit and occupation reported lower pay and job satisfaction, while those earning above
the median reported no change in satisfaction (Card et al.). Also according to Card et al., the
below-median earners reported a significant increase in the likelihood of looking for a new job.
Recent studies such as Clark and Oswald (cited by Card et al.) have documented
correlations between relative income and job satisfaction. Card et al. state that there are two
reasons why information on peer salaries my affect workers’ values. The first identified is the
relative income model in which workers care directly about their pay relative to other employees
(Clark and Oswald as cited by Card et al.). Second is the concept of rational updating in which
workers may react to new information on coworker’s salaries and use it to update their future pay
prospects (Card et al.). In the article, Card et al. proposed and implemented a new strategy for

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evaluating the effect of relative pay comparisons, based on a randomized control of access to
information on coworkers’ salaries. The randomized access was followed by an email asking
both groups to respond to an online survey that included questions on knowledge and use of the
Bee website, on job satisfaction and future job search intentions as well as the respondent’s age
and gender, and on the length of time they had worked in their current position and at UC (Card
et. al).
According to Snell and Bohlander (2012) research demonstrates states that employees’
perceptions of pay equity, or inequity, can significantly impact their motivation for both work
behavior and productivity. At work, employees mentally calculate a ratio of what they give to
what they get (i.e. salary and benefits) and then compare that ratio to the perceived ratio for other
employees in similar jobs (Snell & Bohlander). If the value of their ratio equals the value of
another’s, they see the situation as equitable; however, if they perceive their ratio as inequitable
relative to others’, this creates tension and motivates them to eliminate or reduce the inequity.
One way they could reduce the inequity is by searching for another job outside of the
organization. Snell and Bohlander suggest that pay secrecy can generate distrust in the
compensation system, reduce employee motivation and inhibit organizational effectiveness. “Yet
pay secrecy seems to be an accepted practice in many organizations” (Snell & Bohlander, p.
402).
In their research model, Card et al. (2012) acknowledged that some of the treatment
group were uninformed of the website salary information, and some of the control group was
informed. This happened because in reality some members of both the treatment and control
groups had used the website prior the researchers’ intervention. This incomplete compliance
raises potential difficulties for the interpretation of their research results (Card et al.). Another

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issue is the relatively low rate of survey response, just over 20 percent, leading to some concern
that the sample differs from the overall population of the UC employees (Card et al.). This may
have muddled the effects of the treatment on job satisfaction.
The research findings by Card et al. (2012) support the hypothesis that negative
comparisons matter more than positive comparisons for a worker’s perceived job satisfaction.
They also augment the literature on pay secrecy by suggesting that employers have an incentive
in the short run to maintain pay secrecy, since the costs for lower-paid employees exceed the
benefits for their high-wage peers (Card et al.). In the longer run, Card et al. note that it is
possible that making salary information available to employees may lead to changes in wage-
setting policies.
Conclusion
Card et al. (2012) controlled access to information on coworker pay to find out how
knowledge of one’s position in the pay distribution of immediate coworkers affects satisfaction
and job search intentions. Card et al. found that the information had a negative effect on workers
that were paid below the median, especially for those in the lowest pay quartile but had no effect
for workers paid above the median. These results are consistent with utility functions that
impose a negative cost for having wages below the reference point, but little or no reward for
having wages above it (Card et al.) The results of the Card et al. study validate previous
observational studies and lab-based experimental studies on relative income and worker
satisfaction. Their findings also suggest that employers have a strong incentive to impose pay
secrecy rules (Card et al.).

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References
Snell, S.A. and Bohlander, G. (2013). Managing Human Resources. (16th ed.). Mason, OH:
South-Western – Cengage Learning.