UC Riverside

Abstract: The decision to disclose employee compensation has implications for workplace ethics, motivation, and performance. Pay transparency reduces pay disparity, fostering fairness, and ethical equity. Conversely, pay secrecy can maintain disparity but may drive increased effort. This study proposes a theoretical framework—standard-based entitlement—that explains the non-linear effects of pay disclosure. Our theory predicts that people’s compensation requests are not only a function of the information about their peers’ pay but also depend on individuals' proximity to the #1 ranking position (and other meaningful standards). The results of four experiments across three studies reveal that pay transparency has heterogeneous impacts: It amplifies salary demands from top performers while dampening those of lower-ranked individuals. These results raise ethical concerns about the potential for pay transparency to exacerbate feelings of inequity and demotivation among lower-ranked employees, offering important insights for designing equitable compensation systems and organizational reward structures.