Should you know how much your co-workers earn?

New study finds that knowing how much your co-workers earn can have negative implications on productivity. (Pexels/Photo by Tima Miroshnichenko)

A new study published in the Journal of Business Ethics found that compensation transparency can influence the culture within an organization in many ways.

Most companies keep their employees’ salaries shrouded in secrecy, while others make this information transparent. How does this knowledge affect workplace dynamics?

The study, led by University of California Riverside School of Business professor Boris Maciejovsky, found that when employees learn how their pay compares to that of their peers, feelings of entitlement—and the salary amounts they believe they deserve—can increase or decrease depending on how close they are to the top of the performance ranking list.

“Those with top performance rankings felt entitled to significantly higher compensation than those ranked lower, even when comparing themselves to peers with similar rankings, and were more likely to demand significant raises,” a news release from the university says.

However, people at the bottom of the ranking felt demoralized and were less likely to ask for a raise—or believed that they didn’t deserve one, which could lead to reduced incentive to perform.

The study also raises ethical concerns about performance measurement systems and how they might impact employee motivation, collaboration and perceptions of fairness.

“Organizations should carefully consider the type of information shared with employees, as the appropriateness of this information may depend on the employees’ relative performance,” Maciejovsky says.

Maciejovsky, an associate professor of management, and his co-authors Gunyawee Teekathananont of Imperial College London, Patricia Chen of the University of Texas at Austin, and Stephen M. Garcia of UC Davis, conducted four experiments across three studies to explore a phenomenon they dubbed “standard-based entitlement.”

Study 1 showed that having high-performance standards increases salary demands among both employees and college graduates.

Study 2 looked at the interaction between rank and entitlement in compensation requests involving performance-based payments.

Study 3 identified entitlement as the mechanism driving these effects.

Together, the studies demonstrated how an employee’s position in organizational rankings can lead to an increased sense of entitlement, which in turn can lead to demands for more compensation. On the other hand, those who ranked lower were demotivated.

“While transparency aims to promote fairness and reduce inequities, it may create unexpected consequences by reinforcing status differences between high and low performers, which can impede teamwork and collaboration,” Maciejovsky says.

In one of the experiments, participants were asked to imagine applying for a new job after learning their performance rank in their previous company. Those who were told they ranked third out of 500 asked for significantly more than those who ranked in the middle or lower—even though everyone received the same information about a peer’s salary offer.

Another experiment found that feelings of entitlement acted as the psychological link between rank and requested pay—those at the top asked for higher salaries.

The researchers stress that although transparency has value and can uncover unfair disparities and reduce systemic biases, employers should invest in practices that value growth and contribution across all levels.

“Transparency is a powerful tool,” Maciejovsky says. “But like any tool, it can have unintended consequences if we don’t use it wisely.”