Pay secrecy is collapsing, pushed by disclosure laws and by a generation that discusses salaries openly. The reaction splits into two camps: transparency will fix inequity, or transparency will poison morale. The experimental evidence supports neither slogan, because transparency is not one thing.
Revealing peers can demoralize, asymmetrically
Start with horizontal transparency, what your colleagues earn. In a field experiment, Card, Mas, Moretti and Saez (2012) told University of California employees about a public website listing coworkers' salaries, creating exogenous variation in who learned the information. Workers paid below the median for their unit reported lower job satisfaction and a greater intention to look for another job. Those paid above the median showed no matching lift. The effect was asymmetric and negative: the dissatisfied learned they were underpaid, while the well-paid did not celebrate. The lesson is not that people cannot handle information. It is that revealing a pay gap without a legible reason for it is corrosive.
A field experiment with manufacturing workers in India shows how deep the damage runs. Breza, Kaur and Shamdasani (2018) randomized whether coworkers in a unit received equal or differentiated pay. When the productivity differences behind unequal pay were not observable, inequality cut output by about 0.45 of a standard deviation and attendance by 18 percentage points, and it eroded cooperation even when cooperating was in the workers' own interest. The critical variable is not equality itself. It is whether the difference is justified by something the group can see.
Revealing the boss can do the opposite
Now change the direction. Cullen and Perez-Truglia (2022), in a field experiment with 2,060 employees of a large bank, found that workers badly misjudge what managers earn, underestimating the boss's salary by about 14 percent on average. When they learned managers earned more than assumed, effort tended to rise, because a higher perceived return to promotion made the climb look worth it. Vertical transparency, seeing up the ladder, can motivate precisely where horizontal transparency demoralizes. Cullen (2024) generalizes the pattern: horizontal, vertical, and cross-firm transparency have different and sometimes opposite effects, so a single verdict on transparency is a category error.
Transparency reshapes the pay itself, not just morale
Disclosure also changes the numbers, not only feelings about them. Studying a California law that forced online disclosure of municipal managers' pay, Mas (2017) found that public exposure led to roughly a 7 percent reduction in those managers' compensation and higher quit rates among them. Transparency imposed from outside can compress pay at the top and push exposed people out. That is a real effect that a company adopting openness has to plan for, not a side note.
Transparency also has a target worth naming. Reviewing the gender wage gap, Blau and Kahn (2017) found that the raw gap has narrowed over decades but persists even after controlling for education and experience, with a stubborn unexplained component alongside occupational segregation and parenthood penalties. Openness is one of the few tools that acts directly on that unexplained residual, because a difference no one can justify is harder to sustain once it is visible. The equity case for transparency is real, and it coexists with the morale risks, which is why the design has to make legitimate differences legible while exposing illegitimate ones.
Money is a blunt instrument even before anyone sees it
Underneath the transparency question sits an older one about incentives themselves. Gneezy and Rustichini (2000) showed that the relationship between pay and effort is not monotonic: a small payment can produce worse performance than no payment, because introducing money reframes a task from a social norm into a market transaction and effort drops. Deci (1971) demonstrated the same corrosive mechanism decades earlier, finding that paying people for an intrinsically interesting task reduced their later voluntary engagement with it, while verbal recognition did not. Before a company argues about who should see the numbers, it should notice that the numbers themselves can crowd out the motivation they are meant to buy.
The practical read
Stop asking whether to be transparent and start asking transparent about what. Revealing peer pay without a visible, defensible logic for differences invites the asymmetric morale hit and the productivity loss the experiments document (Card et al., 2012; Breza, Kaur and Shamdasani, 2018). Revealing the ladder above can motivate rather than demoralize (Cullen and Perez-Truglia, 2022; Cullen, 2024). Externally forced disclosure will compress pay and move people, so anticipate it (Mas, 2017). And keep in mind that pay is a crude lever on motivation to begin with (Gneezy and Rustichini, 2000; Deci, 1971). The self-managed pay systems that work are not the ones that simply publish a spreadsheet. They are the ones that make every difference explainable, which is the only form of transparency the evidence rewards.
Sources
- Card, Mas, Moretti and Saez (2012). Inequality at Work: The Effect of Peer Salaries on Job Satisfaction. Learning peers' pay lowered satisfaction for below-median workers, with no symmetric gain above, an asymmetric negative effect. https://doi.org/10.1257/aer.102.6.2981
- Breza, Kaur and Shamdasani (2018). The Morale Effects of Pay Inequality. Unjustified pay inequality cut output about 0.45 SD and attendance 18 points and eroded cooperation. https://academic.oup.com/qje/article-abstract/133/2/611/4430649
- Cullen and Perez-Truglia (2022). How Much Does Your Boss Make? Employees underestimate the boss's salary by about 14 percent, and learning the truth can raise effort. https://doi.org/10.1086/717891
- Cullen (2024). Is Pay Transparency Good? Horizontal, vertical, and cross-firm transparency have different and sometimes opposite effects. https://doi.org/10.1257/jep.38.1.153
- Mas (2017). Does Transparency Lead to Pay Compression? Forced disclosure of municipal managers' pay cut their compensation by about 7 percent and raised quits. https://doi.org/10.1086/693137
- Gneezy and Rustichini (2000). Pay Enough or Don't Pay at All. Small monetary incentives can reduce performance versus no payment by reframing the task as a market transaction. https://doi.org/10.1162/003355300554917
- Deci (1971). Effects of Externally Mediated Rewards on Intrinsic Motivation. Paying people for an intrinsically interesting task reduced later voluntary engagement. https://doi.org/10.1037/h0030644
- Blau and Kahn (2017). The Gender Wage Gap: Extent, Trends, and Explanations. The gap persists with a stubborn unexplained component, the residual that transparency can act on directly. https://doi.org/10.1257/jel.20160995