We revisit the role of labour market institutions by looking at their effect within the firm. We study a peculiar wage indexation mechanism - the Scala Mobile (SM) - that heavily compressed the distribution of Italian wages during the 1970s and 1980s. The SM imposed large real wage increases at the bottom of the distribution and real cuts for high-wage workers. We document that this mechanism triggered a strong redistribution within the firm. Skilled workers received lower total wage adjustments when employed at firms with many unskilled workers and they tended to move towards more skill-intensive firms. We rationalize these findings with a simplified model of rent-sharing within the firm.