The Joint Effects of Supervisor Pay Transparency and Vertical Pay Dispersion on Reporting Honesty

What is it about?

Firms differ greatly in their policies on the "openness" of information, such as whether or not to make hierarchical pay information transparent to their employees. We conducted an experiment to investigate the effect of supervisor pay transparency on subordinates' reporting honesty when the pay difference between supervisors and subordinates is relatively high versus relatively low. We find that although pay transparency can produce positive effects on reporting honesty when the firm's pay structure is relatively flat, its effect on reporting honesty becomes more negative when the pay difference between hierarchical levels increases. This happens even when subordinates feel that the high pay difference between the supervisor and themselves is fair and justified.

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