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Workers are used to compare their wages with those of their co-workers. As a result, it is argued that the dispersion of wages within a firm has a significant impact on the individual workers’ productivity and thus on the average firm performance. However, there is no consensus about the sign and shape of the relationship between wage dispersion and firm performance. On the one hand, the “tournament” models (e.g., Lazear and Rosen, 1981) stress the positive influence of wage inequality within a firm on the workers’ effort. These models suggest the implementation of a differentiated prize structure and to award the largest prize to the most productive worker. On the other hand, other theories argue for some degree of wage compression within a firm by emphasising the importance of fairness and cooperation among the workforce (e.g., Akerlof and Yellen, 1990 ; Levine, 1991). The aim of this paper is to provide a critical summary of the literature regarding the interaction between intra-firm wage dispersion and firm performance. Particular attention is devoted to the empirical results that have been obtained for the Belgian economy.