Organization differ in the degree to which they differentiate employees by ability. We analyse how the effect of differentiation on employee morale may explain this variation. By comparing employees using ordinary talk, a manager boosts the self-image of some, but hurts that of others. Whether the net effect is positive for the organization depends on the degree of synergy between employees and on the shape of their objective function. An implication for relative performance pay is that it yields a double dividend or constitutes a double-edged sword.

Additional Metadata
Keywords cheap talk, comparisons, confidence, teams
JEL Asymmetric and Private Information (jel D82), Wage Level and Structure; Wage Differentials by Skill, Training, Occupation, etc. (jel J31), Organization of Production (jel L23)
Persistent URL
Series Tinbergen Institute Discussion Paper Series
Journal Discussion paper / Tinbergen Institute
Crutzen, B.S.Y, Swank, O.H, & Visser, B. (2007). Confidence Management: On Interpersonal Comparisons in Teams (No. TI 07-040/1). Discussion paper / Tinbergen Institute. Retrieved from