Pay Transparency as a Moving Target: A Multi-Step Model of Pay Compression, I-Deals, and Collectivist Shared Values

Abstract

Drawing from Bernstein’s (2017) transparency-privacy model, we theorize that firm-level pay transparency elicits a multi-step process involving managers and employees that shifts the dispersion in remuneration from more to less observable forms, thus making pay transparency a “moving target”. We posit a serial indirect effect of pay transparency on firm-level rates of i-deal grants (a less observable form of remuneration) via variable pay compression and heightened rates of employee i-deal requests, with this indirect effect amplified in firms characterized by collectivist shared values. First examining the role of managerial agency and collectivist shared values in the pay transparency-compression relationship in a simulation-based experiment, we test the overall model in a multi-source field study using a sample of 111 medical device distribution firms. Our findings demonstrate that: (a) firm-level pay transparency is predictive of greater pay compression, (b) firm-level rates of i-deal grants are largely explained by this pay compression via its effects on employee i-deal requests, and (c) this sequential effect is amplified in firms with more collectivist shared values. Accordingly, we explicate how transparency triggers unintentional hiding, and suggest that accompanying more transparent pay may be an increased reliance upon rewards that, by their very nature, are less transparent.