THE IMPACT OF PAY SECRECY ON INDIVIDUAL TASK PERFORMANCE

We generate and test a moderated mediation model of the effects of pay secrecy—a pay communication policy restricting employees’ access to information regarding the level of other employees’ pay in the organization—on individual task performance. According to this model, the effects of such a policy are posited to be mediated by informational fairness, procedural fairness, and performance-pay instrumentality perceptions, and moderated by tolerance for inequity. Using a lab-based simulation, our findings partially support this model, suggesting that perceived instrumentality mediates the adverse effect of pay secrecy on individual task performance but only for those low in inequity tolerance. For them, the instrumentality-mediated indirect effect accounted for over 20% of the total effect of pay secrecy on individual task performance. For those highly tolerant of inequity, a policy of pay secrecy was found to be directly associated with a higher level of individual performance than pay openness. The implications of the findings for research and practice are discussed.