Is more pay transparency always good? originally appeared on Quora: the place to gain and share knowledge, empowering people to learn from others and better understand the world.

Answer by Tomasz Obloj, Professor of Strategy at HEC Paris, on Quora:

As usually with such questions, the answer is: it depends. On the one hand, transparency, and wage disclosure in particular, is increasingly called for in organizations, with some firms such as Whole Foods or SumAll regularly publishing salaries of all employees. Similarly, recent policy changes and recommendations such as the European Commission Recommendation of 7 March 2014 (2014/124/EU), the 2017 Pay Transparency Act (Entgelttransparenzgesetz) in Germany, or the 2009 Lilly Ledbetter Fair Pay Act in the US make access to, comparison, and discussion over, now transparent, wages easier for all interested parties.

Some countries, such as Norway, have even decided to make all residents' income information and tax returns public knowledge. Why is that? Transparency concerning the criteria based on which new recruits are selected, how performance is assessed and remunerated, who and why some people get promoted while others do not, and so on, has obvious benefits and can act as an important anti-discriminatory tool. We know that gender pay gap or discriminatory hiring persist to be commonplace and transparency is one of the most important tools to help deal with this issue.

On the other hand, transparency may also lead to increased social comparison, imposing significant additional and often unforeseen costs on organizations and employees. How we perform and how able we are is subjective and individuals tend to overestimate their own abilities and underestimate those of their peers. Transparency prompts social comparison and associated sentiments of envy and perceptions of inequity - both of which can decrease motivation, destroy trust, and hamper collaboration in organization. Transparency is important but one must also be conscious of the inevitable costs that come with increased disclosure.

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Published on: Mar 30, 2018