People weigh salaries more than ratios in judgments of income inequality, fairness, and demands for redistribution

Abstract

Five experiments (total n = 2422, with U.S. American and French participants, four preregistered) show that people are more likely to use median salaries rather than CEOmedian employee compensation ratios when making inequality and fairness judgments based on company compensation data. In separate evaluation of companies, we find no significant impact of compensation ratios, which express objective levels of income inequality, but a significant impact of median salaries. In joint evaluation, ratios have an impact, but median salaries have a bigger impact. Our results point to a difference between perceived and actual inequality indicators: people do not perceive inequality based on a widely-used indicator of inequality (compensation ratios), but rather use representative workers' salaries, and believe lower representative wages are connected to higher inequality. We discuss theoretical implications for the psychological understanding of economic inequality, and practical implications for the regulation of the presentation of compensation data.

Justice Evaluation of the Income Distribution (JEID): Development and validation of a short scale for the subjective assessment of objective differences in earnings

“…Respondents are asked whether they find low, middle, upper-middle, high, and top incomes unfairly low, fair, or unfairly high. This operationalization is characterized by two crucial choices: First, it acknowledges that respondents in general population surveys (i.e., laypersons) struggle to think in terms of distributions and attempts to capture complex perceptions of inequality are subject to substantive method effects [ 38 , 40 , 41 ]. Instead, we argue that it is more intuitive for respondents to focus on specific points in a distribution (e.g., what the earnings of the worst-off look like).…”

The Driver of Workplace Alienation or the Cost of Effective Stewardship? The Consequences of Wage Gap for Corporate Performance

“…A narrower strand of literature in the domain of economic incentives [22] argues that employees tend to compare themselves to the average rather than the top earners when evaluating their relative well-being. By this token, the ratio of CEO pay to the average rank-and-file employee's salary would matter less for the assessment of perceived level of inequity than dispersion around the mean.…”