The Effect of Horizontal Pay Transparency on Employee Motivation When Pay Dispersion Is Performance Based and Non-Performance Based

Journal of Management Accounting Research https://doi.org/10.2308/JMAR-2023-025

49 Pages Posted: 15 Mar 2021 Last revised: 12 Dec 2023

See all articles by Robert Grasser

Robert Grasser

University of South Carolina - Department of Accounting

Andrew H. Newman

University of South Carolina

Grazia Xiong

Utah State University; University of South Carolina

Date Written: November 8, 2023

Abstract

The movement towards pay transparency within firms has intensified. We investigate the effect of horizontal pay transparency on employee motivation in a broader information environment where a) performance-based and non-performance-based pay dispersion coexist and b) relative performance information allows employees to alleviate pay dispersion ambiguity in order to assess the basis of any pay dispersion that pay transparency reveals. Drawing on distributive justice theory, we predict and find that pay transparency differentially affects employees’ motivation based on what it reveals about their relative standing while working under the same performance incentives. Specifically, it depends on whether they are underpaid, overpaid, or their relative pay aligns with their relative performance. Our analysis provides additional insights related to these three scenarios and, in doing so, our study highlights the importance of considering employees’ broader information environment when considering the potential benefits and costs associated with pay transparency.

Keywords: Pay transparency, pay dispersion, pay fairness, employee motivation

Suggested Citation

Grasser, Robert and Newman, Andrew H. and Xiong, Grazia, The Effect of Horizontal Pay Transparency on Employee Motivation When Pay Dispersion Is Performance Based and Non-Performance Based (November 8, 2023). Journal of Management Accounting Research https://doi.org/10.2308/JMAR-2023-025, Available at SSRN: https://ssrn.com/abstract=3802785 or http://dx.doi.org/10.2139/ssrn.3802785

Robert Grasser

University of South Carolina - Department of Accounting ( email )

1014 Greene St
Columbia, SC 29208
United States

Andrew H. Newman (Contact Author)

University of South Carolina ( email )

Columbia, SC
United States

Grazia Xiong

Utah State University ( email )

3500 Old Main Hill
Logan, UT 84322-3500
United States

HOME PAGE: http://https://huntsman.usu.edu/directory/xiong-grazia

University of South Carolina ( email )

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

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