Do followers mind the pay gap? An experimental test of the impact of the vertical pay gap on leader effectiveness

Abstract

The pay gap between those in leadership positions and other organisational members has risen markedly over the last five decades. There is evidence that this gap may undermine subordinate identification with and evaluation of the organisation and its leaders. To date, however, there is limited evidence that this gap affects related subordinate behaviour, including their willingness to follow their leader’s commands and work for the organisational public good. To address this, we ran two pre-registered experiments (Study 1: N = 318; Study 2: N = 327) that examined participants’ real effort behaviour in temporary ‘organisations’ with a small or large leader-worker pay gap. We varied whether this pay gap was exogenously determined (Study 1), or endogenously chosen by the leader (Study 2). In both studies, workers in large (versus small) pay gap organisations were less likely to identify with their leader and organisation and reported poorer affective well-being. They were also less willing, at least initially, to follow their leader’s commands. When the size of the pay gap was endogenously chosen by the leader, workers in large (versus small) gap organisations reduced their contributions to the public good. We discuss implications for organisational leadership and performance.