I think this was researched in numerous psychology studies.
All else being equal, people were happier earning $70,000 knowing that their peers earned $50,000, and unhappier earning $90,000 knowing that their peers earned $110,000.
I am likely wrong on exact numbers, but studies are well-known enough to be quoted in "Fooled by Randomness", "Predictably Irrational" and some other pop-psych titles.
The sudden change is another factor: if people had "always" been making much more similar incomes, or if the company gradually/quietly narrowed pay spreads over time, the results may be different than a sudden change from large pay disparities to much smaller ones. Some of it in my opinion is quite cultural, not purely psychological, based on background expectations of what wage spreads "should" be.
When I used to work in Denmark, I noticed expats were often much more annoyed about the (approximate) wage equality than Danes were. I was making $80k or so, and most people I knew were making in the $70k-$100k range, doing jobs ranging from professor to software developer. Meanwhile, a typical full-time restaurant waiter or construction worker might make around $50-60k. So, we had higher incomes, but not by a huge margin, certainly less than the spread would be in the US. Many expats found this grossly unfair, that despite them having a high-status and supposedly high-end job, they were still in approximately the same socioeconomic class as basically any other worker. They considered themselves underpaid, and the other workers overpaid. But most Danes didn't really see an issue, and considered the Danish wage spreads to be normal.
All else being equal, people were happier earning $70,000 knowing that their peers earned $50,000, and unhappier earning $90,000 knowing that their peers earned $110,000.
I am likely wrong on exact numbers, but studies are well-known enough to be quoted in "Fooled by Randomness", "Predictably Irrational" and some other pop-psych titles.