Pay Transparency: Conceptualization and Implications for Employees, Employers, and Society as a Whole

Pay transparency refers to the degree to which pay communication policies and practices governing employee pay knowledge facilitate or restrict the sharing of pay-related information. While relatively few enterprises have adopted transparent pay-communication practices, a variety of institutional factors, such as government regulations and social norms, are driving employers to provide their employees with greater pay knowledge. Consensus has emerged around the existence of three main dimensions or forms of pay transparency, namely pay-outcome transparency, pay-process transparency, and pay-communication transparency. Research findings indicate that pay-outcome transparency, which relates to the degree to which pay rate information is disclosed by the employer, has both beneficial and problematic consequences, depending on the outcome. For example, while pay-outcome transparency has been consistently found to be associated with enhanced individual task performance and reduced gender-based pay discrepancies, it has also been associated with higher levels of envy, diminished helping, heightened levels of counterproductive work behavior, and pay compression (which could elicit negative sorting effects). In contrast, pay-process transparency, which relates to the degree to which employees are informed about the parameters underlying reward-related decisions, has been found to have largely beneficial consequences and few unintended negative consequences. Finally, while it is least studied, pay-communication transparency, capturing the degree to which restrictions are placed on employees’ ability to share pay knowledge with others, is positively associated with employee perceptions of employer fairness and trustworthiness and can have significant implications for employee retention.