Boards are split. Some push pay transparency to rebuild trust. Others worry it will fuel envy just as engagement sinks. The cost of getting this wrong is not abstract: global employee engagement fell to 20 percent in 2025, with Gallup estimating roughly 9 percent of world GDP lost to low productivity, about 10 trillion dollars (Gallup, 2025). Manager engagement dropped sharply too, from 27 to 22 percent in a single year, which makes any compensation story harder to tell inside firms (Gallup, 2025).
The strongest field evidence says transparency is a double-edged tool. News about what your boss earns can spur effort. News about what your peers earn can kill it. That is not a slogan for or against transparency. It is a design constraint.
What the best evidence actually shows
A randomized field experiment in a large Southeast Asian bank provides unusually clean evidence on how salary comparisons change behavior (Cullen and Perez-Truglia, 2022). Employees systematically misjudged what their managers made, underestimating it by 14.1 percent on average, with a mean absolute error of 28 percent. They were much closer on peers, with an average absolute error of 11.5 percent and no systematic bias (Cullen and Perez-Truglia, 2022).
Correcting those beliefs changed effort in opposite directions. When employees learned their manager’s pay was higher than they thought, they worked more. A 10 percent increase in perceived manager pay lifted hours worked in the next 90 days by 1.5 percent, a short-run elasticity of 0.150 based on administrative records from the bank (Cullen and Perez-Truglia, 2022). The same research finds the other edge of the blade. Learning that peers earn more is demotivating, reducing effort relative to those who did not receive such information (Cullen and Perez-Truglia, 2022). The study’s context is one bank, so leaders should beware overgeneralizing, but the design is strong: pre-registered, randomized, and grounded in administrative data in a top-tier journal.
Two design lessons follow. First, vertical comparisons can catalyze aspiration when they are credible signals of a reachable next rung. Second, horizontal comparisons can feel like a verdict on fairness among equals. If a transparency push treats both the same way, it will mix fuel with water and then wonder why the engine coughs.
Design for aspiration, not envy
How you organize authority shapes how pay information lands. Self-managing organizations decentralize authority formally and extensively. Their defining move is to eliminate the boss–subordinate relationship, replacing it with distributed decision rights and role-based commitments (Lee and Edmondson, 2017). The management literature they synthesize is blunt on hierarchy’s trade-offs. Traditional managerial layers are good at reliable execution in stable settings but tend to become rigid, and they amplify status differences that can stifle development across functional boundaries (Lee and Edmondson, 2017).
Those status dynamics matter for transparency. In a conventional ladder, manager pay can double as a beacon of what the next level brings. In flatter or self-managing designs, where authority is distributed, the same number can look like arbitrary status if the criteria are unclear. That does not mean self-management and transparency are at odds. It means pay must be tied to transparent roles, skills, and contribution, not title mystique. In practice, that requires publishing ranges that map to role complexity, explaining how people move between ranges, and stating who decides and how. These are design choices, not accounting footnotes.
Make transparency safe to use
Data do not teach by themselves. People do the learning, and they do it only when the environment is safe enough to ask and challenge. In a field study of 51 work teams in a manufacturing firm, team psychological safety, defined as a shared belief that the team is safe for interpersonal risk-taking, was associated with higher learning behaviors. Learning, in turn, mediated the link from safety to performance, whereas team efficacy alone did not predict learning once safety was accounted for (Edmondson, 1999). The evidence is correlational and limited to one company, but it remains the seminal foundation for how teams adapt.
Pay transparency is a high-risk conversation by default. Treat it as a learning problem. Before publishing numbers, publish the principles: how the organization trades off external market rates, internal equity, role scope, and performance. Invite questions in forums where people can push for clarifications without fear, and make those answers part of a living record. When someone discovers a peer earns more, the first instinct is often moral accounting. Psychological safety makes it more likely the next move is inquiry: what skill, scope, or impact difference explains the gap, and what is the path to close it? The point is not to neutralize envy by fiat. It is to channel it into development.
Fix the manager-shaped gap
The irony of 2025 is that the people asked to explain pay are themselves running out of steam. Manager engagement fell 9 percentage points since 2022, with the steepest annual drop between 2024 and 2025 (Gallup, 2025). In firms that get engagement right, 79 percent of managers are engaged, which shows the gap between common and best practice, but this is survey evidence rather than causal proof (Gallup, 2025).
What to do with that constraint? Anchor the story in vertical aspiration where the evidence says it helps. Make manager pay legible as a bundle of broader responsibilities, sharper accountability, and defined skills. Publish the progression checklists and the decision rights that come with each step, not just the pay ranges. Then, contain the horizontal hazard by minimizing unexplained dispersion within the same role, and by giving peers structured ways to examine and appeal decisions. None of this guarantees a quiet Slack channel on comp day. It does give managers a script grounded in design rather than platitudes.
The deeper read for flatter organizations is that transparency is inseparable from governance. If authority is distributed, then so is the work of making sense of pay. That calls for communal mechanisms, not heroic managers. Clarity on who sets ranges, how market data are chosen, and how exceptions are approved is part of the operating system. Psychological safety is the grease that keeps those mechanisms from seizing.
The practical implication is simple. If you cannot explain why someone is paid more and how to get there, do not publish the number yet. Start by building the ladder, the rules, and the forum to question them. Then use transparency to light the path up the ladder, not to glare at the person on the next rung.
Sources
- Cullen and Perez-Truglia (2022). How Much Does Your Boss Make? The Effects of Salary Comparisons. A randomized field experiment shows employees underestimate manager pay and that higher perceived manager pay increases short-run effort, while learning peers earn more is demotivating. https://doi.org/10.1086/717891
- Lee and Edmondson (2017). Self-managing organizations: Exploring the limits of less-hierarchical organizing. Defines self-managing organizations and synthesizes evidence on how hierarchy can entrench status differences that affect development, informing how transparency lands in different designs. https://www.sciencedirect.com/science/article/abs/pii/S0191308517300059
- Edmondson (1999). Psychological Safety and Learning Behavior in Work Teams. Finds team psychological safety is associated with learning behaviors, which mediate performance, underscoring why transparency must be paired with safe dialogue. https://journals.sagepub.com/doi/10.2307/2666999
- Gallup (2025). State of the Global Workplace 2025. Reports global engagement at 20 percent, an estimated 9 percent of GDP lost to low engagement, and a sharp drop in manager engagement, framing the stakes and constraints for pay transparency. https://www.gallup.com/workplace/659610/state-global-workplace.aspx