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Workers are used to comparing 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 individual workers’ productivity and thus on average firm performance. However, there is no consensus over evidence for a relationship between wage dispersion and firm performance. On the one hand, “tournament” models (e.g., Lazear and Rosen 1981) stress the positive influence of wage inequality within a firm on workers’ commitment, suggesting the implementation of a differentiated reward structure and the award of the largest rewards to the most productive workers. Meanwhile, other theories argue for some degree of wage compression within a firm by emphasizing 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 empirical results obtained for the Belgian economy.