If you run a team, a department or a whole company then how do you set pay? Do you reward your best performers more money or do you prefer an equal pay system?

Many people fear that paying some people more than others at similar levels of seniority creates tension: those paid less might resent the higher paid and possibly even try to undermine them.

New research from the University of Nottingham School of Ecconomics suggests that the opposite could be true: employees might resent equal pay.

The researchers found that in a roleplay experiment an equal pay system demotivated those working hardest. They came to resent their fellow workers who were doing less for the same money and subsequently eased up themselves. By contrast those who were paid based on performance worked much harder.

Johannes Abeler, co-author of the study, said:

Equal pay is often referred to as a cornerstone of a fair wage scheme and is one of the most prevalent pay modes. But in a work environment, the equity norm demands that a person who puts in more effort should receive a higher wage. In other words, if equity is important, the often-heard slogan ‘equal pay for equal work’ implies ‘unequal pay for unequal work’.

Of course this research was based on a very simple experiment. The report itself is careful to stress that:

The results in this paper should not be interpreted as arguments against wage equality in general. They rather suggest that equal wages come at a cost that has to be weighed against their potential benefits.

(A point apparently lost on much of the British press).

There are many interacting factors in a real workplace. For example, should “performance” be defined by effort or results? How do you reward workers for helping their colleagues to excel? Perhaps most importantly of all, how do you ensure the process is transparent without creating an adversarial management framework?

No doubt academics will study these issues at some future date.