Procedural Pay Transparency, Motivational Climate, and Employee Outcomes

Abstract

As most previous research on pay transparency focused on individual- or organizational-level dynamics, we have limited understanding of the impact of pay transparency on culture or climate within an organization. This study investigates how procedural pay transparency is associated with the motivational climate in work units within organizations. One might argue that, in the presence of pay transparency, employees may further engage in social comparisons to learn about how they are doing relative to their peers, which leads to an increased performance climate, where success is defined based on relative performance. However, the findings from this study suggest that procedural pay transparency is positively associated with mastery climate instead, that is, a work unit climate where success is defined based on learning, growth, and effort. Furthermore, the results suggest that procedural pay transparency is meaningfully related to sorting and motivational effects through its impact on mastery climate.