Is it good to know how much your co-workers make?

Many companies keep employee pay shrouded in secrecy while other employers make such information known to their workers. So, what are the impacts of compensation transparency?

A new study published in the Journal of Business Ethics found that revealing employee pay unexpectedly influences workplace dynamics in ways never demonstrated before.

When employees learn how their pay stacks up against their peers, their feelings of entitlement—and the salary they believe they deserve—can rise or fall depending on how close they are to the top of performance ranking lists, the study found.

Those with top performance rankings felt entitled to significantly higher compensation than those ranked lower, even when comparing themselves to peers with similar rankings, and were more likely to demand significant raises.

Conversely, those at the bottom of the rankings felt more demoralized and were less likely to ask for a raise, and sometimes felt they didn’t deserve one at all. They thus may have little incentive to do better or collaborate with their co-workers.

The study raises ethical questions about how performance measurement systems might impact employee motivation, collaboration, and perceptions of fairness—especially for those not at the top of the rankings.

What the researchers say: "Organizations should carefully consider the type of information shared with employees, as the appropriateness of this information may depend on the employees' relative performance," the lead author said.

He and his coauthors conducted four experiments exploring a phenomenon they call "standard-based entitlement." They demonstrated that an employee's position in company rankings significantly influences how much they feel entitled to compensation they believe they deserve.

Top rankings spur a sense of entitlement to demand more compensation, while lower rankings dampen such a sense of entitlement. These findings have important implications as organizations increasingly adopt pay transparency policies. While transparency aims to promote fairness and reduce inequities, it may create unexpected consequences by reinforcing status differences between high and low performers which impeded teamwork and collaboration, they explained.

The research challenges the assumption that transparency always leads to better outcomes in fairness and morale. Instead, it highlights a complex interplay between social comparison and individual perceptions of worth. Employees, the study found, don’t simply respond to how much others make—but rather, how close they are to being the top performer. That nearness to a high-status benchmark, not just the numbers, drives feelings of deservingness.

In one experiment, participants were asked to imagine applying for a new job after learning their performance rank in a previous company. Those told they ranked third out of 500 asked for significantly more than those ranked in the middle or at the bottom—despite receiving identical information about a peer’s salary offer.

Another experiment found that feelings of entitlement acted as the psychological link between rank and requested pay. Those closer to the top felt more deserving, and this translated directly into higher salary demands.

The study’s findings are timely, as more US states - including California - enact “right-to-know” laws requiring pay disclosures in job postings. Meanwhile, websites like Glassdoor and levels.fyi make salary information easier than ever to access.

My take: This research is in line with a lot of other recent studies which have shown that inequality in terms of remuneration was keenly felt.

These other studies have shown that the real issue is not the money but rather a sense of relative status. Beyond a certain level of pay - in the US it’s about $58,000 - salary is about status, about relative value. Therefore, if someone is making more than you are it’s a statement that the employer values them more than you.

To a human being status equals safety. The higher your sense of your own status the more you feel that people will protect you and support you because they value you.

Status has nothing to do with position, just the perception of value.