Executives want a lever for performance without lighting a cultural fuse. Engagement has slumped to 20 percent worldwide, and the price tag for lost productivity is about 9 percent of global GDP, or 10 trillion dollars (Gallup, 2025). Managers themselves are running out of steam, with engagement down to 22 percent, a nine-point slide from 2022 (Gallup, 2025). In that climate, pay transparency looks like a fix that can align fairness, trust, and output. It can, but only if you point it in the right direction.
What the best evidence actually shows
A field experiment inside a multibillion-dollar commercial bank in Southeast Asia offers unusually clean guidance. Using administrative records, incentivized surveys, and information-provision experiments, Zoë Cullen and Ricardo Perez-Truglia tested how real employees react when they learn what others earn (Cullen and Perez-Truglia, 2022). The misperceptions were large. Employees underestimated their manager’s pay by 14.1 percent on average, with a mean absolute error of 28 percent. By contrast, perceptions about peers were closer to reality, with a mean absolute error of 11.5 percent and no systematic bias (Cullen and Perez-Truglia, 2022).
The punchline was behavioral. When employees discovered that their manager earned more than they had believed, they worked more. A 10 percent increase in the perceived salary of the manager raised hours worked over the next 90 days by 1.5 percent, an elasticity of 0.150 (Cullen and Perez-Truglia, 2022). In short, vertical comparisons to the boss increased effort. The flip side also mattered. Learning that peers were paid more than previously thought tended to demotivate. Horizontal comparisons cut the other way in the same study, a pattern the authors highlight. The evidence here is experimental and strong, yet it still comes from one bank in one region, so leaders should respect the boundary conditions while taking the mechanism seriously (Cullen and Perez-Truglia, 2022).
Transparency is an incentive design, not a moral stance
These results do not say that secrecy is better. They say that the direction of transparency matters because it changes what employees infer about opportunity and status. Showing what leaders earn, paired with clarity on how to get there, frames pay as a tournament worth entering. Broadcasting who among teammates earns more can stoke zero-sum comparisons that feel unfair or unchangeable.
That is where organizational design comes in. Research on self-managing organizations defines them as systems that decentralize authority radically and eliminate the formal manager-subordinate relationship (Lee and Edmondson, 2017). The conventional hierarchy can execute routine tasks reliably, but it also hardens status differences and can stifle complex cross-boundary problem solving (Lee and Edmondson, 2017). If you keep a hierarchy, the Cullen and Perez-Truglia mechanism gives you a clean lever: make upward pay structures visible and the path to them concrete. If you flatten, you need to translate “vertical” into role progression that signals future opportunity rather than peer rank.
Either way, the human factor is non-negotiable. Teams learn and improve when people feel safe to take interpersonal risks, speak up, and ask for help, a construct Amy Edmondson defined as psychological safety (Edmondson, 1999). In her field study, psychological safety predicted learning behavior, and learning mediated its link to performance (Edmondson, 1999). That should discipline how you communicate pay. If transparency turns into public shaming or peer league tables, you tax psychological safety and, by extension, learning. If it clarifies expectations and future options, you reinforce the conditions under which teams get better.
How to design transparency that motivates
The practical implication is simple to state and strict to execute: aim transparency upward to fuel aspiration, avoid corrosive lateral comparisons, and couple all pay communication to development.
-
Publish pay architecture, not gossip. Make ranges for roles and levels visible, including managerial bands. Add the decision rules that connect performance, scope, and pay. This channels attention to the path ahead, which aligns with the vertical-comparison effect on effort documented in the bank study (Cullen and Perez-Truglia, 2022).
-
Limit named peer-to-peer disclosures. Resist internal tools or dashboards that let employees compare individual peers directly. Where law or policy requires broad transparency, aggregate peer data by quartile or range and avoid identifiers. The study’s horizontal-comparison result is a clear warning that peer pay revelations can undercut motivation (Cullen and Perez-Truglia, 2022).
-
Tie pay talks to growth plans. In team settings, focus on what would move someone from their current band to the next, and make the criteria explicit. This approach supports the learning behaviors that sit between psychological safety and performance (Edmondson, 1999).
-
In flatter structures, create visible progression without reintroducing rank. Self-managing organizations remove the boss-subordinate tie by design (Lee and Edmondson, 2017). Replace the “manager pay” comparison with transparent pay steps for stewardship roles, project scopes, or skill certifications. The aim is the same incentive logic, translated into a system that values distributed authority.
-
Watch the manager signal. Manager engagement has deteriorated markedly since 2022 (Gallup, 2025). When managers know how their compensation reflects the weight of their responsibilities, and when their teams see a clear path to such roles, the pay story sustains both parties. Keep that story anchored in rules and futures, not personalities.
The 2020s read
Firms face a blunt macro reality: most people are not engaged at work, and the cost is vast (Gallup, 2025). In that context, pay transparency is not a virtue campaign. It is a design choice about what comparisons you invite. The cleanest field evidence says that upward comparisons lift effort and sideways ones can spoil it (Cullen and Perez-Truglia, 2022). Hierarchy can make those comparisons vivid, for better and for worse. Flattened models remove the manager as the focal point, which means leaders must build other ladders that are just as visible (Lee and Edmondson, 2017). Across models, protect the norms that let people speak candidly and learn, because that is what turns clarity into performance rather than fear (Edmondson, 1999).
Get the direction of transparency right, and you earn a productivity dividend without corroding culture. Get it wrong, and you buy more heat than light at a time when neither managers nor teams have much slack left.
Sources
- Cullen and Perez-Truglia (2022). How Much Does Your Boss Make? The Effects of Salary Comparisons, Journal of Political Economy. A pre-registered natural field experiment in a Southeast Asian bank shows that upward pay comparisons increase hours worked while peer comparisons tend to demotivate; it also documents large misperceptions of manager pay. https://doi.org/10.1086/717891
- Lee and Edmondson (2017). Self-managing organizations: Exploring the limits of less-hierarchical organizing, Research in Organizational Behavior. Defines self-managing organizations and reviews how traditional hierarchy enforces status differences that can inhibit complex problem solving, framing how transparency should work in flatter systems. https://www.sciencedirect.com/science/article/abs/pii/S0191308517300059
- Edmondson (1999). Psychological Safety and Learning Behavior in Work Teams, Administrative Science Quarterly. Introduces team psychological safety and shows it predicts learning behaviors that mediate performance, a caution for how pay information should be communicated. https://journals.sagepub.com/doi/10.2307/2666999
- Gallup (2025). State of the Global Workplace 2025. Reports global employee engagement at 20 percent, a cost near 10 trillion dollars or 9 percent of global GDP, and a drop in manager engagement to 22 percent, establishing the stakes for incentive design. https://www.gallup.com/workplace/659610/state-global-workplace.aspx