Does pay transparency help or hurt? Evidence on employee motivation

41 Pages Posted: 15 Mar 2021

See all articles by Robert Grasser

Robert Grasser

University of South Carolina

Andrew H. Newman

University of South Carolina

Grazia Xiong

University of South Carolina

Date Written: March 11, 2021

Abstract

The prevalence of pay transparency has grown in recent years, yet there is limited empirical evidence regarding its potential motivational benefits and costs relative to pay secrecy. Using an experiment, our study investigates the effect of pay transparency on employee motivation while considering two important aspects of the context in which relative pay information is typically provided. 1) Pay transparency reveals pay dispersion which can have different causes: performance-related (endogenous) and non-performance-related (exogenous). 2) Pay transparency is embedded in a broader information environment that often includes relative performance information. Drawing on theory of social comparison and distributive fairness, we predict and find that ultimately the effect of pay transparency on employee motivation depends on the information that pay transparency reveals. Specifically, rather than finding a positive motivational benefit of transparency as anecdotal and initial research evidence suggest, we instead find there are either no meaningful positive motivational benefits or even negative motivational effects of providing pay transparency. By highlighting organizational and environmental factors that influence the effectiveness of pay transparency, our study provides insights on the potential benefits and costs of pay transparency, and thus adds value to the on-going debate over pay transparency versus pay secrecy.

Keywords: Pay transparency, pay dispersion, relative performance information, distributive fairness, employee motivation

Suggested Citation

Grasser, Robert and Newman, Andrew H. and Xiong, Grazia, Does pay transparency help or hurt? Evidence on employee motivation (March 11, 2021). Available at SSRN: https://ssrn.com/abstract=3802785 or http://dx.doi.org/10.2139/ssrn.3802785

Robert Grasser

University of South Carolina

1014 Greene St
Columbia, SC 29208
United States

Andrew H. Newman (Contact Author)

University of South Carolina ( email )

Columbia, SC
United States

Grazia Xiong

University of South Carolina ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States

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