Return-to-office mandates make headlines, but the quieter rupture sits elsewhere: firms are flattening layers while debating how transparent to be on pay. Engagement is sliding at the same time. Only 20 percent of employees globally report being engaged, down from the 2022 peak, with managers themselves dropping to 22 percent engagement and a growing share saying they are burned out (Gallup, 2025). If fewer managers are doing less day-to-day coaching, the design of pay transparency is no side show. It becomes a primary signal of what the organization values.
What the strongest field evidence actually says
The cleanest evidence on how pay information shapes behavior comes from a large field experiment inside a multibillion-dollar commercial bank in Southeast Asia. Employees systematically underestimated how much their bosses earned, by 14.1 percent on average, and their errors about peers were smaller and not biased in one direction. When employees learned that their manager earned more than they thought, they worked more hours. A 10 percent increase in perceived manager pay raised hours worked over the next 90 days by 1.5 percent, an elasticity of 0.150 (Cullen and Perez-Truglia, 2022). The same study found the opposite pattern for horizontal comparisons. Peer pay information tended to demotivate. This is not a think piece, it is a preregistered, randomized information-provision experiment with administrative data. The caveat matters too. It is one firm in one country, so leaders should pilot before they roll out a policy at scale (Cullen and Perez-Truglia, 2022).
Read the design implication straight. If you want to stimulate effort, make the vertical ladder visible: what managers earn, what roles pay at the next rung, and what it takes to get there. If you want to avoid souring the atmosphere, resist broadcasting who among coworkers makes what. Both sides belong in the policy.
Flattened structures raise the stakes
Self-managing organizations decentralize authority in formal, systematic ways and remove the boss-subordinate relationship as the default unit of control (Lee and Edmondson, 2017). Hierarchy works when the task is stable and repeatable. It is notably worse at cross-boundary problem solving, and it tends to harden status differences that stunt people’s development (Lee and Edmondson, 2017). Many companies today are not jumping to full self-management, but they are thinning middle management and pushing decisions down. That makes pay design carry new weight. If the manager is less of a daily presence, employees look to the system for cues.
Vertical pay transparency functions as a simple, credible cue. It says what outcomes the organization rewards and what advancement is worth. Horizontal transparency, by contrast, draws attention to status gaps among peers, which amplifies the very pecking-order dynamics flatter structures try to mute. The bank experiment shows how these signals land in practice: upward comparisons spark effort, sideways comparisons sap it (Cullen and Perez-Truglia, 2022).
There is a second reason to get the design right. Engagement is not just low, it is costly. Gallup estimates that disengagement drags about 9 percent of global GDP, roughly 10 trillion dollars, in lost productivity. The gap between common practice and better practice is largest for managers. In top-quartile workplaces, 79 percent of managers are engaged versus the global average of 22 percent. That is a design argument, not a fate argument (Gallup, 2025). Clear, credible pay rules can do some of the coaching work busy or absent managers no longer do.
Talk about money in psychologically safe ways
Even the best policy fails if people do not feel safe asking how the rules work. Psychological safety, a shared belief that the team is safe for interpersonal risk taking, is associated with the learning behaviors teams need to tackle thorny topics like money and status. In a field study of 51 teams in one manufacturing firm, teams with higher psychological safety engaged more in learning behaviors that mediated better performance, while team efficacy without safety did not produce the same effect (Edmondson, 1999). The study was cross-sectional and confined to one company, so treat it as a design lens rather than a causal law. The implication is practical. Before you publish more pay information, build the conditions for open questions and error reporting. Otherwise, transparency can become a compliance dump that no one uses, or worse, a source of quiet resentment.
A simple playbook leaders can run now
Treat pay transparency as management by other means. Design it to send the right signals and to be discussable.
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Publish vertical signals by role, not neighbor-by-neighbor. Make manager and next-level role pay bands, bonus logic, and advancement criteria visible. This aligns with the documented pattern that upward comparisons motivate effort, while sideways comparisons demotivate, and it keeps the spotlight on advancement rather than status contests (Cullen and Perez-Truglia, 2022).
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Tie transparency to a pathway. Spell out the skills, performance thresholds, and decision rights that move someone from one band to the next. In flatter or self-managing settings, those explicit rules substitute for what a boss would otherwise clarify ad hoc (Lee and Edmondson, 2017).
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Build the conversation muscle. Train teams and leads on how to invite questions, surface errors in pay data, and respond without defensiveness. Psychological safety correlates with the learning behaviors that make such conversations productive, especially when money is on the table (Edmondson, 1999).
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Pilot, measure, then scale. The best evidence we have comes from a single bank in Southeast Asia. Treat your own policy as an experiment. Roll out to a unit, measure effort and attrition, then refine before going company-wide. Resist the urge to post every individual salary without first testing the effects on motivation and trust. The empirical warning on peer comparisons is real, and it deserves respect (Cullen and Perez-Truglia, 2022).
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Do not expect managers to carry this alone. With manager engagement down and variation in practice wide, use systems to reduce discretion where it does not add value. The more the rules are clear and credible, the less motivational load rests on depleted managers, and the more consistent the employee experience becomes across teams (Gallup, 2025).
The through line is simple. In leaner hierarchies, employees read the pay system as a scoreboard and a map. Get the signals right. Make the route upward worth the extra effort. Keep the distracting comparisons offstage. Then make sure people feel safe enough to question the rules. Flattening does not absolve leaders from managing. It changes the instrument. In many firms, the pay policy is now the loudest note.
Sources
- Cullen and Perez-Truglia (2022). How Much Does Your Boss Make? The Effects of Salary Comparisons, Journal of Political Economy. A randomized field experiment in a large Southeast Asian bank found that learning managers earn more than expected increases hours worked, while peer comparisons demotivate, guiding which pay information to make visible. 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 synthesizes evidence on when hierarchy helps or harms, supporting the case for explicit pay rules in flatter structures. 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 its association with learning behaviors that mediate performance, underscoring the need for safe pay discussions. https://journals.sagepub.com/doi/10.2307/2666999
- Gallup (2025). State of the Global Workplace 2025. Reports global engagement at 20 percent, manager engagement at 22 percent versus 79 percent in best-practice firms, and a 10 trillion dollar productivity cost, motivating the need for clear system-level incentives. https://www.gallup.com/workplace/659610/state-global-workplace.aspx