The work I do provides many opportunities to learn new words, but what I really enjoy is being introduced to a word that immediately explains a concept or phenomenon that everyone knows about and yet doesn’t have a word for.

Jason Ridge

It happens almost every time I start a new project. The most recent example is “transparency,” a word I associate with openness or ethical practices or behavior in government and business. In a study published in Strategic Management Journal and discussed recently in the Harvard Business Review, Jason Ridge, assistant professor of management in the Sam M. Walton College of Business, and co-authors Aaron Hill and Federico Aime at Oklahoma State University focus on pay transparency, an issue that pervades nearly every workplace.

In their study, Ridge and his co-authors acknowledge the advantages of pay transparency. Such policies can prevent racial, ethnic and gender discrimination and can give employees “a firm grasp of where they stand in an organization.”

The advantages mentioned above are important, but how does pay transparency affect the bottom line? Ridge and his colleagues focused the study on identifying when pay transparency is most effective, outside of possible demographic aspects of work or how other aspects of transparency may impact how individuals respond to it.

The researchers found that pay transparency alone, without some kind of transparent performance metric, fails. Pay transparency works only in concert with objective and transparent standards and expectations about tasks and how well workers are doing them. The authors write, “…if differences in pay can be clearly tied to how their performance stacks up against coworkers’, harmful effects of differences in compensation can be negated. Pay transparency must go hand-in-hand with performance transparency – something that may seem obvious but, at least in our experience, is lacking in most organizations.”

Ridge and his co-authors arrived at this finding by studying one of the highest-profile pay-transparency occupations in the United States – professional baseball. It is a job in which everyone  can know how much players make and see how well players perform every time they take the field. The study confirmed previous research showing that pay inequality has a negative relation to overall performance. That is, the greater the inequality, the worse the overall winning percentage.

With a deeper look at individual performance, however, the researchers found something different. When there was a match between pay and performance – in other words, the high-performing players were paid the most and the lower-performing players were paid less – then the negative aspects of pay inequality abated, and these teams had a higher winning percentage.

The takeaway here, it seems to me, is that player morale was higher when they felt like everyone was getting paid what they deserved.

Ridge’s research focuses on the intersection of executive leadership, compensation and political strategy. Earlier this year, I wrote about one of his studies, also co-authored by Hill, that showed a growing conflict-of-interest problem in Congress.