Benefit of Pay Secrecy:

 The issue of pay secrecy is no less contentious among researchers with studies indicating
that secrecy may have both benefits and costs to employers, employees and society at
large (Colella, et al., 2006; Gely & Bierman, 2003).

 Among the primary benefits of pay secrecy is that it may allow employers -- particularly
those relying on subjective rather than objective assessments of performance -- to more
effectively link pay to performance, thus potentially enhancing individual task
performance.

 A tighter link between pay and performance is possible under conditions of pay secrecy
because pay secrecy reduces the risk of internal conflict, jealousies and morale problems
among employees which can emerge when differentials are more public (Leventhal,
Michaels & Sanford, 1972; Gomez-Mejia & Balkin, 1992). As a result, pay secrecy may
reduce the pecuniary costs to managers for accurately assessing employee performance
and allocating more pay to those who provide the greatest returns to the firm (Brickley et
al., 2000; Bartol & Martin, 1989).

 Reduced pay-based conflicts and jealousies may also elicit greater cooperative employee
behaviors (Colella et al., 2007; Day, 2007), which – particularly in interdependent task
contexts – may be instrumental in eliciting enhanced individual task performance.

 Finally, pay secrecy may enhance employees’ perceptions of privacy; perceptions which
have been found to be associated with both performance and commitment (Klopfer &
Rubenstein, 1977; Sundstrom, Burt & Kamp, 1980).

Negative side of Pay secrecy:

In contrast, others have noted that pay secrecy may be deleterious at the policy, firm
and individual levels.

At the policy level, pay secrecy can have a deleterious impact on equal employment opportunity
and labor mobility because, in the absence of pay information, employees may be unable to
recognize and assess the magnitude of discriminatory pay practices, and hence be unable to
accurately estimate the possible longterm benefits of changing jobs (Gely & Bierman, 2003,
Edwards, 2005).

At the level of the firm, studies suggest that pay secrecy can have an adverse effect on
employees’ trust in their employer, as well as lead to increased payroll costs and/or turnover as
employees overestimate the pay of their peers (thus inflating employee pay expectations) and
underestimate the pay of their bosses (thus encouraging them to seek career advancement
elsewhere) (Lawler, 1966; Lawler & Jenkins, 1992).

Finally, at the individual level, a number of scholars suggest that pay secrecy can have an
adverse effect on employee motivation and learning, and consequently on task performance. For
example, as we describe in greater detail below, Colella et al. (2007) suggest that secrecy can
generate perceptions of unfairness which, in the context of equity (Adams, 1963) and expectancy
(Vroom, 1964) theories, may hamper employee motivation to perform.