The Hidden Costs of Pay Transparency: The Development of a Model

Abstract

The rising demand for greater pay transparency from governments and stakeholders compels a need to understand its repercussions on employee and organizational outcomes. While often presumed to benefit employees, increased pay outcome transparency, in particular, poses potential costs that necessitate careful exploration. Existing studies have focused on a broad variety of visible outcomes like pay dispersion, as well as potential negative consequences such as strained employee relationships and counterproductive work behaviors for those perceiving pay inequity. Given these disparate findings, there is a critical need for a broader conceptual framework to discern when and why transparency may yield adverse organizational outcomes through negative emotions. Drawing on Affect Theory of Social Exchange (ATSE) and incorporating the relatively new concept of undermet pay standing expectations (UMPSE), we highlight the distinct yet overlapping emotional pathways of anger and envy. Specifically, UMPSE-driven anger may give rise to broad retaliatory behaviors, directed both at the organization (e.g., reduced commitment and withdrawal) and at coworkers (e.g., displaced hostility). In contrast, envy produces a more targeted social response, generating retaliatory behaviors primarily toward colleagues through social undermining. By differentiating the broader retaliatory scope of anger from the more interpersonal focus of envy, our model advances understanding of the nuanced emotional dynamics shaping employee reactions to pay transparency. Furthermore, we propose that a positive organizational justice climate should moderate the influence of UMPSE on negative emotions and, in turn, mitigate undesirable behaviors. We discuss the practical implications for mitigating these negative emotions and counterproductive work behaviors.