Key Findings   Pay secrecy (in contrast to pay transparency) negatively affects the performance of individuals who are less tolerant to inequity;  Pay secrecy negatively affects the perception of the link between performance and pay in individuals intolerant to equity, which in turn, decreases their performance;  In contrast, pay secrecy is associated with significantly better task performance than pay transparency for individuals who are more tolerant to inequity

Bamberger, Peter

Belogolovsky, Elena

English

DigitalCommons@ILR

Cornell University ILR School 
DigitalCommons@ILR 
CAHRS ResearchLink Center for Advanced Human Resource Studies (CAHRS) 
6-2013 
When Pay is Kept Secret, the Implications on Performance are 
Revealing 
Elena Belogolovsky 
Cornell University, eb582@cornell.edu 
Peter Bamberger 
Tel Aviv University 
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When Pay is Kept Secret, the Implications on Performance are Revealing 
Abstract 
Key Findings 
• Pay secrecy (in contrast to pay transparency) negatively affects the performance of 
individuals who are less tolerant to inequity; 
• Pay secrecy negatively affects the perception of the link between performance and pay in 
individuals intolerant to equity, which in turn, decreases their performance; 
• In contrast, pay secrecy is associated with significantly better task performance than pay 
transparency for individuals who are more tolerant to inequity. 
Keywords 
pay secrecy, pay transparency, performance, pay inequity 
Comments 
Recommended Citation 
Center for Advanced Human Resource Studies. (2013, June). When pay is kept secret, the implications on 
performance are revealing (CAHRS ResearchLink No. 3). Ithaca, NY: Cornell University, ILR School. 
This article is available at DigitalCommons@ILR: https://digitalcommons.ilr.cornell.edu/cahrs_researchlink/26 
 Pay secrecy (in contrast to pay transparency) negatively affects the performance of indi-
viduals who are less tolerant to inequity;  
 
 Pay secrecy negatively affects the perception of the link between performance and pay in 
individuals intolerant to equity, which in turn, decreases their performance;  
 
 In contrast, pay secrecy is associated with significantly better task performance than pay 
transparency for individuals who are more tolerant to inequity.  
 
Public companies are required to share compensation packages for their top executives. And 
yet, pay secrecy for most other employees remains an established practice in many work-
places both in America and abroad (Day, 2007; Gely & Bierman, 2003). Many organiza-
tions believe that pay secrecy eliminates jealousy among employees. Indeed, well over a third 
of those American employers surveyed indicated that they provide only a limited amount of 
pay information to their employees and enforce rules prohibiting employees from discussing 
their wages with coworkers (HRnext.com Survey, 2001). This research examines the impact 
of pay secrecy on employees’ performance. 
 
Researchers set out to draw from expectancy theory notions to explain how the effects of 
pay secrecy on perceived performance-pay instrumentalities are likely to cause a generally 
adverse effect on individual task performance. In addition, the study drew from equity and 
justice models to suggest that informational and procedural fairness perceptions may also  
 
 
 
 
Key Findings  
 
 
 
WHEN PAY IS KEPT SECRET, THE 
IMPLICATIONS ON PERFORMANCE ARE 
REVEALING 
CAHRS 
ResearchLink  
No. 3 
June 2013  
Topic: A Person’s Tolerance For Inequity May Affect Performance 
When it Comes to Pay Secrecy  
 
 
 
 
 
 
 
 
 
Page 2 When pay is kept secret, the implications on performance are revealing 
 
 
 
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Many managers believe that pay secrecy is better because it avoids the implications if 
one employee finds out that a coworker makes more than him/her. However, many  
up-and-coming Generation Y employees have grown up in the public world of social 
media and have no issues sharing information with one another that used to be seen 
as private – such as pay. Furthermore, they are more likely to have access to ballpark 
figures that are easily obtained from any computer or even a smartphone. Even for 
non-Millennials – or for those who don’t go online to try to estimate what others 
make, people always assume that 1) other people make more money than they do in 
fact and that 2) they are better performers.   
 
Researchers found that the relationship between pay secrecy (relative to pay transpar-
ency) and perceived pay-for-performance link (i.e. instrumentality perceptions) is 
moderated by an individual’s tolerance for inequity. For employees with lower levels of 
tolerance, this means lower performance.   
Pay policy was manipulated for the 144 participants of the study in the following way:  
Pay secrecy individuals received information on their own absolute levels of individu-
al performance and bonus pay only. In addition, prior to the first round of the simula-
tion, participants in this condition were told that pay is a personal matter and were 
play a role in generating such outcomes, partially mediating the effect of pay secrecy 
on individual task performance. Finally, building on Collela et al’s (2007) suggestion 
that the effects of pay secrecy may not be universal, the researchers explain how this 
indirect effect of pay secrecy on individual task performance is likely to be moderated 
by tolerance for inequity. 
 
The study was performed in a lab-based simulation in which base pay was constant, 
but pay communication policy regarding performance-based bonuses was manipulat-
ed. The experiment proposed and tested the following factors:  
 
(a) the psychological mechanisms linking pay secrecy and individual task perfor-
mance, as well as;   
 
(b) a key dispositional factor – namely the individual’s tolerance to inequity – as a 
potential mitigation variable of such relations. 
Results 
Method 
Page 3 
 
 
 
193 Ives Hall 
Ithaca, NY 14853 
607-255-9358 
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cahrs@cornell.edu 
Month 2012  
CAHRS 
ResearchLink  
No. XX  
Month 2012  
requested not to discuss any pay-related matter with other participants in the study at 
any time. All communications between participants was monitored.  
 
In contrast, participants assigned to the open pay condition received information re-
garding their own individual performance and bonus pay as well as information regard-
ing the pay (but not performance level) of their fellow group members (listed by code-
numbers in order to ensure privacy). Participants in the open condition were told that 
their post phase, e-mail-based communications with their fellow group members would 
be completely unrestricted.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The direct effect of pay communication policy on task performance is significantly mod-
erated by tolerance for inequity. The nature of this moderation effect is also consistent 
with the theory that the relationship between pay secrecy and individual task perfor-
mance is such that performance is lower among those with lower levels of tolerance for 
inequity. There is a significant positive effect of secrecy on performance among those 
more inequity tolerant. In contrast, among those less tolerant for inequity, this effect is 
not only not significant, it is downward sloping.  
Figure 1: Moderated Model of Pay Policy (X) on Individual 
Task Performance (Y)  
  
 
 
Page 4 When pay is kept secret, the implications on performance are revealing 
 
 
 
193 Ives Hall 
Ithaca, NY 14853 
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2012  
CAHRS 
ResearchLink  
No. XX  
Month 2012  
 
 
 
 
 
 
 
 
 
 
The impact of pay secrecy on instrumentality perceptions for those respondents with 
mean and high tolerance for inequity were insignificant. In contrast, for those with 
low tolerance for inequity, the negative effect of pay secrecy on individual task perfor-
mance via perceived instrumentality is more negative among those with lower levels of 
inequity tolerance.  
 
In other words, when people are in an environment where they have to guess what 
others make, those individuals who are less inequity tolerant not only think that they 
deserve to make more money, but they are less motivated to work hard.  
 
 
 
 
Figure 2: Moderation of the Effect of Pay Policy on 
Perceived Instrumentality 
 The Center for Advanced 
Human Resource Studies 
(CAHRS) is an international 
center serving corporate 
human resources leaders and 
their companies by providing 
critical tools for building and 
leading high performing HR 
organizations. CAHRS’ mis-
sion is to bring together part-
ners and the ILR School’s 
world-renowned HR Studies 
faculty to investigate, trans-
late and apply the latest HR 
research into practice excel-
lence.  
 
 
 
193 Ives Hall 
Ithaca, NY 14853 
607-255-9358 
www.ilr.cornell.edu/cahrs 
cahrs@cornell.edu  
  
         Page 5 
Researchers  
 
 
 
 The findings suggest that organizations subscribing a policy of pay secrecy 
should make additional efforts to help employees with lower levels of toler-
ance for inequity to more accurately calibrate their perceptions of the link 
between performance and pay.  
 
 One example could be – rather than enforcing a policy of strict pay secrecy – 
adopting a pay administration policy of partial openness with the broad pa-
rameters of compensation (for example, making bonus associated with a given 
level of performance or performance improvement more transparent). This 
option would eliminate the reluctance that managers have shown in the past 
to overhaul an entire pay policy – a daunting task, to say the least.  
 
 The solution is not to make pay systems completely open, but to make them 
more transparent and fair, and communicate clearly about them. Employees 
need to understand how to get from Point A in a salary range to Point B. It’s 
also important to make sure that employees perceive the system as fair – it 
doesn’t matter what you think. If your employees don’t perceive it as fair, 
you’re in trouble. 
 
 
 
Bamberger, P. & Belogolovsky, E. (2010). The Impact of Pay Secrecy on Individ-
ual Task Performance, Personnel Psychology, 965-996.  
 
Day, N. E. (2007).  An investigation into pay communication: Is ignorance bliss? 
Personnel Review, 36, 739-762  
 
Gely, R., & Bierman, L. (2003). Pay secrecy / confidentiality rules and the nation-
al labor relations act. Journal of Labor and Employment Law, 6, 120-156.  
 
Hrnext.com Survey. 2001. www.hrnext.com/content. 
 
Colella, A., Paetzold, R., Zardkoohi, A., & Wesson, M. (2007). Exposing pay 
secrecy. Academy of Management Review, 32, 55-71.  
 
 
 
 
 
 
 
Full article:  
http://onlinelibrary.wiley.com/doi/10.1111/j.1744-6570.2010.01194.x/abstract 
Elena Belogolovsky,  
Assistant Professor,  
Human Resource  
Studies,  
ILR School,  
Peter Bamberger 
Recanati Graduate School 
of Business Administration  
Tel Aviv University  
Researchers  
CAHRS 
ResearchLink  
No. 3 
June 2013  
Takeaways 
References  


When Pay is Kept Secret, the Implications on Performance are Revealing

Key Findings  Pay secrecy (in contrast to pay transparency) negatively affects the performance of individuals who are less tolerant to inequity;  Pay secrecy negatively affects the perception of the link between performance and pay in individuals intolerant to equity, which in turn, decreases their performance;  In contrast, pay secrecy is associated with significantly better task performance than pay transparency for individuals who are more tolerant to inequity.No3_13ResearchLink_Belogolovsky_060113.pdf: 2354 downloads, before Oct. 1, 2020

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