For many years, managers have been warned that greater pay transparency would reduce morale. The logic was simple: employees who discovered they earned less than their peers would be dissatisfied, while those earning more would feel justified but no happier. The perceived outcome was only risk, with no organisational benefit.
Recent research challenges this assumption. Analysing around 300,000 compensation satisfaction ratings across 1,300 publicly traded firms and 62 industries, the authors studied the impact of the SEC’s 2018 requirement for companies to disclose the CEO pay ratio. Their findings, summarised in Harvard Business Review (2025), reveal that transparency actually increased employees’ satisfaction with their pay on average.
The key factor was not CEO pay itself, but the disclosure of median employee pay. Workers already knew the gap between their own salary and the CEO’s. What they did not know, before the mandate, was how their colleagues’ pay compared. Seeing the lower-than-expected median employee figure provided a more realistic reference point, correcting inflated assumptions often fuelled by gossip or incomplete online data. This more accurate comparison led many employees to feel more satisfied with their own pay.
The implications for leaders are significant. Employees already form beliefs about pay, whether through social cues, gossip, or external websites. By withholding accurate data, organisations leave staff to rely on incomplete or inflated information. When transparent pay data is provided, employees are less likely to overestimate peers’ salaries and more likely to perceive fairness. This effect is strongest in contexts where labour markets are less competitive and alternative salary benchmarks are harder to access.
For inclusion, this matters greatly. Pay secrecy can amplify feelings of unfairness, particularly among underrepresented groups who may already suspect inequity. Providing clear, accurate information not only addresses misconceptions but also builds trust and signals organisational commitment to fairness. Rather than avoiding transparency, leaders should ask: what salary data do employees already see, what assumptions are shaping their perceptions, and how might openness improve both morale and inclusion?
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