How Employers and Employees React to Rising Pay Transparency Expectations: An Exploratory Study

Abstract

Pay transparency regulations aim at reducing economic inequalities such as pay discrimination and the gender pay gap. However, such regulations do not necessarily lead to more transparency and less discrimination. We add to pay transparency scholarship by studying the employer—employee interactions that unfold in the course of the implementation of a new pay transparency law. More specifically, we explore the quasi-causal effects of the “Transparency in Wage Structures Act” (TWSA) in Germany through a comprehensive survey data analysis. We show that – in spite of the law – plants remain passive, and hardly contribute to more pay transparency. We also show that employees in TWSA plants communicate more about their pay, such that the TWSA increases pay transparency through a bottom-up, informal process rather than through mandated plant-based transparency. At the same time, employees report a decrease in pay satisfaction and organizational citizenship behaviors. We discuss these results, and outline theoretical and practical implications.