The Joint Effects of Supervisor Pay Transparency and Vertical Pay Dispersion on Reporting Honesty

We investigate how supervisor pay transparency interacts with vertical pay dispersion to affect subordinates’ reporting honesty in a budgeting setting. As predicted, results from our experiment suggest that the effect of supervisor pay transparency relative to secrecy on reporting honesty becomes more negative (more positive) as vertical pay dispersion becomes higher (lower). Our findings suggest that supervisor pay transparency complements an egalitarian pay structure by increasing reporting honesty, whereas it does not fare along with high vertical pay dispersion by decreasing reporting honesty. Further investigation suggests that this result is not necessarily driven by the feeling of unfairness towards high supervisor pay, but by a benchmarking effect (i.e., subordinates use supervisor pay as a pay standard and try to find ways to earn a similar amount).