When Does Pay Transparency Increase or Decrease Employee Motivation? The Role of Pay Dispersion and Relative Performance Information

• In Event: Sustainability and Pay Transparency

Abstract

The prevalence of pay transparency has grown in recent years. However, many firms still prefer to maintain pay secrecy. Empirical evidence for this on-going debate over pay transparency versus pay secrecy is very limited. Using an experiment, our study investigates how the effect of pay transparency on employee motivation are influenced by the nature of pay dispersion present in an organization and its current feedback environment, namely, whether a formal relative performance feedback system is also in place. Drawing on theory of social comparison and distributive fairness, we predict and find that ultimately whether the effect of increasing pay transparency on employee motivation is negative, positive, or inconsequential depends on the information content pay transparency reveals in isolation or in addition to a formal RPI system. By highlighting factors that influence the nature of the effectiveness of pay transparency, our study extends our understanding of pay transparency and identify settings under which 1) pay feedback and performance feedback are largely substitutes; and 2) performance feedback overshadows the motivational effect of pay feedback.

Authors

• Robert Andreas Grasser, University of South Carolina

• Andrew H Newman, University of South Carolina

• Grazia Xiong, University of South Carolina