Status and Coordination in Organizations∗

Firms can motivate workers by offering them social status. Much of the literature argues that a rise in status is a powerful work incentive while ignoring its impact on coordination. However, when workers need to collaborate while having individual vested interests, too large a difference in status distorts how workers coordinate, i.e., one worker compromises too much with respect to his most preferred choice and the other compromises too little. On the contrary, small status differentials can be profitable when status confers power and cost advantages.