Executives chasing productivity are running into a colder fact: engagement is sliding. Only 20 percent of employees report being engaged in 2025, and Gallup estimates the economic cost of disengagement at about 10 trillion dollars, roughly 9 percent of global GDP (Gallup, 2025). Pay transparency looks like an obvious lever. It promises fairness, signal, and trust. Used bluntly, it also stokes resentment.
What transparency actually changes
A rare natural field experiment shows how pay information moves behavior. In a randomized study inside a large commercial bank in Southeast Asia, employees were asked what they thought their bosses and peers earned, then some were told the truth. On average, employees underestimated their manager’s pay by 14.1 percent, with a mean absolute error of 28 percent. For peers, the mean absolute error was smaller, 11.5 percent, and without a systematic bias up or down (Cullen and Perez-Truglia, 2022).
The consequences were asymmetric. When workers learned their manager earned more than they had believed, they worked harder. A 10 percent increase in the perceived pay of the manager raised hours worked in the following 90 days by 1.5 percent, an elasticity of 0.150 (Cullen and Perez-Truglia, 2022). This is a crisp vertical signal: higher stakes above you can galvanize effort. Horizontal comparisons were different. Learning that similarly ranked colleagues were paid more tended to demotivate, a result the authors emphasize as the other side of the coin (Cullen and Perez-Truglia, 2022). The lesson is not that transparency is good or bad. It is that the direction of the information matters.
If you publish names and numbers across the row, you court social comparison effects that drain effort. If you publish how pay ladders up by role, you send an aspirational signal that can raise it. That is the behavioral core any policy has to respect.
Turn a risky conversation into a learning one
Pay is not just math. It is status, identity, and risk. Team members will not ask for clarity on pay bands or promotion criteria if they fear embarrassment or retaliation. Amy Edmondson’s foundational field study of 51 work teams found that psychological safety, the shared belief that the team is safe for interpersonal risk taking, predicts learning behavior in teams, and that learning behavior in turn links to performance. Team efficacy, the belief the team can succeed, did not explain learning once safety was accounted for (Edmondson, 1999).
That finding does not test pay, and we should not overclaim. It does, however, point to a necessary condition for any transparency regime to work in practice. If discussing money is risky, teams need explicit rituals that make it safer to ask questions, surface mistakes, and talk through edge cases. Absent that, even elegant pay architecture turns into rumor management.
Practical moves follow from this logic: publish bands by role and level alongside concrete criteria for progression, run regular Q&A sessions where people can ask about how those criteria are applied, and debrief contentious decisions so the team learns rather than speculates. These are learning behaviors. Psychological safety is what enables them.
Flattening changes the venue for pay
Many firms are experimenting with fewer managerial layers and more local autonomy. The academic definition of self-managing organizations is precise: they decentralize authority in a radical, formal, and systematic way across the organization, eliminating the manager–subordinate relationship as the core organizing device (Lee and Edmondson, 2017). In the traditional model, hierarchy can deliver reliable execution in stable settings but tends toward rigidity, reinforces status differences, and can stifle cross-functional problem solving and development (Lee and Edmondson, 2017).
Those design facts matter for pay. If you remove or thin the managerial spine, you also remove the default owner of compensation conversations. In a flatter setting, the answer is not to leave pay to ad hoc negotiation. The answer is to make the governance of pay local and explicit. Teams can set clear norms for what information is shared, how to request a review, what evidence counts, and how disputes are resolved. Some firms implement standing compensation councils at the unit level to apply company-wide bands and rules to specific cases. That is an interpretive recommendation, not a causal claim from the literature. It is, however, consistent with the requirement that decentralization be formal and systematic, not laissez-faire (Lee and Edmondson, 2017).
Designing pay as a team process also reduces the cognitive and political load on any single boss. That matters because managers themselves are running out of steam. Gallup reports that manager engagement has fallen nine points since 2022, dropping from 27 percent to 22 percent between 2024 and 2025, while in best-practice organizations 79 percent of managers are engaged, almost four times the global average (Gallup, 2025). The gap signals a design problem, not just a mood. Moving pay transparency and progression from a private hallway conversation to a visible team process is one such design choice.
A playbook that respects the evidence
The research points to a simple spine. Use vertical signals to motivate, remove peer-by-peer comparisons that distract, and create the conditions for open, repeatable learning around pay decisions.
Three moves to try next quarter:
- Publish role-based pay bands with the delta to the next level, plus the competencies that justify movement. This aligns with the finding that upward comparisons to managers can raise effort, while sidestepping peer-by-peer comparisons that can demotivate (Cullen and Perez-Truglia, 2022).
- Make pay talk a team ritual. Hold scheduled sessions where teams can ask how criteria are applied, and run postmortems on contested calls. You are engineering the learning behaviors that psychological safety enables and that link to performance (Edmondson, 1999).
- Push governance down, not clarity up. Create unit-level compensation councils to apply company-wide rules. This matches the requirement that self-management be formal and systematic if it is to avoid status games and rigidity by stealth (Lee and Edmondson, 2017).
The outcome you are after is straightforward. Employees see how to progress and who decides. They understand why differences exist. Managers are not sole defenders of every number. In a world where engagement is scarce and the cost of getting it wrong is counted in trillions, that is a transparency bet worth making (Gallup, 2025).
Sources
- Cullen and Perez-Truglia (2022). How Much Does Your Boss Make? The Effects of Salary Comparisons, Journal of Political Economy. A randomized natural field experiment showing upward comparisons to managers increased hours worked while horizontal peer comparisons tended to demotivate; also documents large misperceptions about manager pay. https://doi.org/10.1086/717891
- Edmondson (1999). Psychological Safety and Learning Behavior in Work Teams, Administrative Science Quarterly. A field study where team psychological safety predicted learning behavior, which mediated performance, underscoring the need for safe conversations when instituting pay transparency. https://journals.sagepub.com/doi/10.2307/2666999
- Lee and Edmondson (2017). Self-managing organizations: Exploring the limits of less-hierarchical organizing, Research in Organizational Behavior. Provides the canonical definition of self-managing organizations and synthesizes why hierarchy can reinforce status and rigidity, guiding how to formalize team-level pay governance. https://www.sciencedirect.com/science/article/abs/pii/S0191308517300059
- Gallup (2025). State of the Global Workplace 2025. Reports global employee engagement at 20 percent with about 10 trillion dollars in lost productivity, and a drop in manager engagement along with a best-practice benchmark, framing pay transparency as an organizational design lever. https://www.gallup.com/workplace/659610/state-global-workplace.aspx