By the equity theory of motivation, it might be good to still have some pay gap between different levels of hierarchy and authority to prevent those with more senior and presumably stressful jobs from becoming demotivated. The logic would run something like this: "Why should I bust my arse to get 75k when my secretary makes 70k for watering the office plants*?". The beneficiaries of the pay bump are probably feeling pretty damn motivated, though. Depending how flat the hierarchy is, that may not be much of an issue, though. With 120 staff, you're looking at around 4 layers: 100 line staff, 16 managers, 4 executives, CEO.
I saw an example of pay-based demotivation recently in my current job. My supervisor is a temp, and is getting paid less than one of his subordinates (though she was on a ludicrously high salary for her job role). He discovered the fact and overnight turned from snarky-yet-efficient to surly-doesn't-give-a-damn, and I don't blame him.
This story reaffirms my belief that privately held companies are generally more innovative, entrepreneurial and beneficial to the economy than public companies, all else held constant, due to the correct alignment of incentives between management and ownership. This guy owns and manages the company, so he calls the shots. If he were head of a similar-sized public company (quite small for a public company, but I digress) he'd be shown the door by the board within the week, unless he had a tongue made of pure silver.
*Have been secretary. Have watered plants. Didn't get 70k. Sadface.
