Transparency vs Honesty: A Workplace Trade Off

Context and problem

Many firms have adopted open-plan office designs to encourage collaboration. Intuitively, one would expect that few internal walls and minimal partitioning between work stations would increase transparency and honesty.

Researchers observed that implementing transparency policies regarding pay levels between employees and their supervisors can be counterproductive. When the pay gap is significant at different levels of an organization, subordinates will try make performance targets easier to hit, thus reducing the competitiveness and profit of the organization.

The same goes for information policies that promote open communication within organizations and transparent sharing of information with employees.

Key takeaways from the paper

When pay is relatively unequal throughout an organization’s hierarchy, subordinates seeing their pay as unfair may redress unfairness by creating budgetary slack

This involves exaggerating costs or underestimating expected revenue to make it easier for personnel to reach targets and earn incentives. This hurts businesses’ competitiveness and profitability

Letting subordinates observe their peers’ behaviour will strengthen prevailing norms of relative honesty or dishonesty

When pay is unequal and subordinates create budgetary slack to compensate, seeing their peers do the same will strengthen the dishonest behaviour. When pay is more equal, seeing peers’ estimating honestly encourages the same.

If organizations adopt an open working environment, it may be prudent to reduce the pay differentials between organizational hierarchies

Conversely, in an independent working culture, increasing pay differentials between organizational hierarchies will not motivate slack-building.