08/18/2025

New Research Debunks a Common Criticism of Pay Transparency

Conventional thinking may be unfounded

For years, managers have been advised to avoid pay transparency among rank-and-file employees, but our research using employee ratings of compensation satisfaction from more than 1,300 publicly traded firms shows that this may not always be the right choice.

The old thinking assumed that employees who discover they are paid less than others will be unhappy, while those who learn that they earn more than others will feel their pay is justified, leading to no change in their satisfaction. If these reactions to pay transparency hold true, firms only face downsides from being more transparent about pay.

However, our research shows this conventional thinking may be unfounded. We conducted a study using Glassdoor compensation satisfaction ratings from before and after the SEC’s 2018 mandate that companies disclose the CEO pay ratio, which compares CEO pay to that of the median employee. We found that the transparency brought on by the new disclosure made employees more satisfied, on average, with their own pay.

Please select this link to read the complete article from Harvard Business Review.