Here’s an interesting snippet from “Stumbling and Mumbling” on the subject of Inequality and Performance. It has possible implications for any situation in which some people are marked out as “high performers” and given an obvious incentive as a result, like extra payment.

This an excerpt from the article:

Inequality hurts. That’s the message of this new paper from Bruno Frey and colleagues. They looked at how US basketball players and German bundesliga [National League] footballers’ performance is affected by pay inequalities. And they found that players who earn less than their team-mates tend to perform worse, even controlling for ability. Low pay relative to one’s peers reduces one’s performance, even though rising pay across the board improves it.

This has implications outside of sport. It suggests that a firm that pays a big bonus to a “star” performer - or just gives him a pay rise to try and keep him - might see its overall performance worsen, as its less well paid employees work less well in response. This effect could outweigh the tendency for the well-paid employee to respond positively to the higher incentive.

It’s worth looking at the comments to this post as well, since a number of readers have suggested mechanisms that might both foster and limit such an effect.

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