Analyzing Pay Secrecy: Advantages, Disadvantages, and HRM Implications

This essay delves into the controversial topic of pay secrecy within Human Resource Management (HRM). It explores the concept, defining it as the withholding of compensation information from employees, and examines its implications for organizational dynamics. The essay discusses the in...Read More

Running head: HUMAN RESOURCE MANAGEMENT
Human Resource Management
Name of Student
Name of University
Author Note

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Introduction
Among the policies involving human resource planning, pay secrecy is considered as
the most intriguing and controversial subject. Pay secrecy has its advantages as well as
disadvantages that elude the concept of pay secrecy. Han, Bartol and Kim (2015) stated that
the advantages and disadvantages of pay secrecy are such that it provides certain advantages
as well as disadvantages. The factors related to the pay secrecy need to be considered during
the decision-making activities of the employees. Certain contextual factors exist that exert
influence on every company. The essay focuses on the importance of pay scale and the
advantages and disadvantages it can have in an organisation. The intention of the managers in
the application of pay secrecy and the consequences are discussed in the essay. The
implication of HRM is provided in the essay.
Discussion
According to Menges et al. (2017), pay secrecy is considered as the withholding of
information regarding compensation and other payments that need to be provided to the
employees. The secrecy is mainly based on the pay structure that is provided in other
companies so that insecurity or superiority over the rivals is not felt. Hence, it can be said that
the managers apply pay secrecy in a systematic manner so that information regarding
compensation can be withheld from the employees. However, one of the common dimensions
that are obtained from the company is the fact that it does not prohibit employees to ask
others about the method of compensation and payment in the organisation. This is one of the
effective ways to obtain information regarding the manner in which compensation may be
obtained in the organisation. Pay secrecy needs to be a form of a continuum in an
organisation and not focus on providing objective responses (Nyberg, Pieper & Trevor,
2016).

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Therefore, it is seen that the pay secrecy exists in a broader context. Absolute pay
secrecy can exist once the employees have no knowledge about the compensation structure of
an organisation. The implementation of the human resource management policy exists only
after the managers convince employees about maintaining secrecy about the compensation
received for the welfare of the organisation. DeNisi and Smith (2014) stated that the
compensation received by every employee needs to be kept a secret from one another. This
can help in preventing any type of misunderstanding within an organisation and ensure that
the productivity of the organisation can be maintained. It has been seen that the pay secrecy
exists in several forms that are depended on the type of information that has been withheld.
Flexibility in the information provided in the compensation system can be provided to be the
employees by withholding certain information regarding the amounts received by employees.
Information such as salary and incentives received by the employees can be kept a secret
from the employees.
Cobb (2016) stated that the managers might fabricate information regarding the pay
and compensation policy in an organisation so that they can prevent employees from
understanding the correct pay structure in the organisation. It has been seen that the
compensation in companies comprises of direct as well as indirect compensation. The
employees in an organisation can be compensated with non-financial rewards along with the
rewards provided in terms of financing the employees. Compensation can be in many forms
such as salary, wage, incentives and pay raise. Apart from this, it is also said that the non-
monetary compensation does not need to be a secret as these are provided to the employees in
the presence of other employees in an organisation. Hence, it needs to be seen that employees
get the required benefits that can help them to maintain a stable career in management in
organisations. Huselid and Becker (2017) is of the opinion that incentive is a type of

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compensation that depends upon the work done by the employees and it varies as per
employee performance.
It has been seen that the decision to withhold the compensation structure of the
employees is the initial sacrifice that managers need to make in the application of pay
secrecy. However, Trotter, Zacur and Stickney (2017) stated that the secrecy about the
compensation of the employees would not be enough to prevent them from understanding
their roles and responsibilities in an organisation. The pay structure and the task
responsibility of the employees indicate the position held by the employees in an
organisation. Hence, it can be said that the employees seek after the disruptive justice that
exists in an organisation. It is necessary that the managers implement compensation strategy
that can be fairly distributed in the organisations. This is one way of maintaining peace in the
organisations and ensures that the value of work performed by the employees is performed in
a proper manner. Hence, pay secrecy need to be shunned so that employees can be judged
based on fair compensation in the organisations.
As observed by Colbert, Yee and George (2016) pat secrecy differs in the segments
about whether it includes direct and indirect compensation. As established earlier the secrecy
of payment includes withholding information about a particular employee as well as the
payment received by the other employees. However, this secrecy is more frequent than that
which provides information about the manner in which salaries are to be paid to the
employees. The calculation of the salaries includes calculation of the compensation as well as
the incentives of the people. Barrick et al. (2015) stated that a more liberal policy that can be
maintained from the pay secrecy includes information about the basic salaries of the
employees and the manner in which the information regarding compensation is withheld.
Hence, it can be said that despite the defending of pay secrecy by various scholars and the

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criticism of it by other scholars, pay secrecy has certain advantages as well as disadvantages.
This situation depends on the policies adopted in the organisations.
Shin and Konrad (2017) stated that companies might not implement pay secrecy if it
did not provide certain advantages to the employees as well as to the organisations. The
advantages of pay secrecy are normally implemented in practical matters. This includes the
improvement in the organisational control and less conflict. This is mainly because of the fact
that without knowledge of the salaries of one another employees can provide better
productivity in the organisation. The feeling of motivation to work can exist that may have a
positive influence on the organisation (Shields et al., 2015). At the same time, there may be
an increased possibility of differentiation between the workers that perform effectively with
those that do not perform that well. Based on this analysis, the pay structure can be formed
and the members of the organisation can work hard to maintain the level of pay or to improve
it to achieve self-actualisation. This is a huge advantage for the employees as well as the
organisation.
Another advantage that may include is the reduced turnover of the employees. The
secrecy of payment does not provide opportunities to employees to gain knowledge about the
pay of other employees (Ulrich et al., 2015). This reduces the rise of employee conflict and
consequently reduces the rate of turnover. The reduced rate of turnover is an important factor
as it helps organisations to maintain its composure in the market. The pay secrecy also
increases the privacy of the personal information of the employees. The privacy of the
employees is one of the most important factors that every organisation needs to consider so
that ethical issues relating to it does not rise. The privacy of information helps in maintaining
the database of the employees and the information regarding payment and personal life are
kept in a secured manner. Belogolovsky and Bamberger (2014) stated that another important

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advantage that occurs due to the pay secrecy is the fact that employees can be better
positioned during the negotiation of salary.
Colella et al. (2017) stated that such an advantage could be beneficial for the small-
scale organisations that are owned by the private sectors. The existing or potential employees
can be categorised depending on the experienced and the skill level. This can help the
employees gain potential benefits in an organisation and gain professional knowledge
regarding the systems in the organisation. The difference in pay grade can allow the
employees to be more motivated in performing efficient work to improve in the organisation.
It has been observed that the less information of the employees leads to provide more
opportunities to the managers to control the employees (Futrell & Jenkins, 2018). This can
help the managers to manipulate and guide the employees in a manner that can help them to
continue work in the organisations. Distribution of compensation is one of the most important
factors that contribute heavily to the conflict in an organisation. Some of the employees feel
de-motivated with the fact that other employees get more salary based on the compensation.
The differentiation between the good and bad employees can be judged by the level of
payment that they receive. However, Burroughs (2014) stated that before providing such
labels it is necessary that the performance of the employees are evaluated in a manner that
provides significant recognition for the work done by the employees. The hindsight of this is
that the employees that do not receive the rewards normally provide negative reaction to the
other employees receiving rewards. This may cause organisational conflict and reduce the
workload of the employees. This is considered as the part in which pay secrecy plays an
important role in the mitigation of any conflict situation. Without proper knowledge of the
reward system, employees cannot show restraint and disappointment. Gerhart and Fang
(2014) observed that the in accordance with the business cultures, pay secrecy regarding the

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identification of better workers are more in collectivist culture whereas, in an individualistic
culture, the positive effects lie in the positivity of the employees.
Thus, it can be said that the advantages of pay secrecy can have a positive effect on
an organisation. However, it needs to be kept in mind that pay secrecy may have its
disadvantages as well that may hinder the progress of an organisation. One such disadvantage
is the fact that the pay secrecy may create a misconception about the compensation structure
of an organisation. The negative perception of the manner in which compensation is
distributed creates a chance of conflict among the employees. According to Gupil and Shaw
(2014), pay secrecy disables any type of internal and external equity that may drive an
organisation to success. The employees are denied the right to participate in the distribution
process of the organisations and thereby cannot take decisions leading to the success of the
organisations. This may create huge de-motivation for the employees, as they may feel
valueless in the organisations. Another disadvantage that may arise is the fact that unequal
distribution of compensation and salary. This can normally lead to excess employee turnover
and provide a competitive disadvantage for the organisations (Ulrich et al., 2015).
This unequal distribution can be attributed to the performance of the employees.
Managers tend to pay the employees based on the performance provided by them. This can
help in determining the good employees from those that underperform. However, from the
viewpoint of the employees, this can act as a de-motivating factor as the employees perceive
their qualities as equal to one another (Colbert, Yee & George, 2016). This may create
dissatisfaction, lead to the closure of work, and provide less productivity in the organisations.
At the same time, it may also lose the loyalty of the employees and consequently, employees
may lose faith in the compensation structure of a company. However, it can be said that on
most occasions it is seen that the employees suffer more than the organisation as the excess
turnover of the employees may lead to a rise in unemployment. In the modern world, secrecy

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about information of employees and organisations are important and because of this secrecy
related to payment is maintained by every organisation. Thus, employees may have to deal
with the same scenario in every business organisation.
Ulrich et al. (2015) stated that the pay secrecy also decreases the ability of managers
to influence the behaviours of the employees. The employees have the right to possess
knowledge about the salary that they will obtain and secrecy of such information may lead to
strikes and uncooperative behaviour from the employees. Thus, it can be said that the pay
secrecy leads to the occurrence of many negative consequences that may harm the progress of
the employees and the organisations. Thus, it can be said that employers need to understand
these disadvantages so that they can analyse the risks that are involved in the application of
pay secrecy. The policies relating to the secrecy of pay may cause human resource managers
to re-think the strategies that are involved in the organisation.
Conclusion
Hence, after the analysis of the essay, it can be said that pay secrecy can be interesting
as well as controversial owing to a perception of the employees and the employers. The
withholding of information from the employees may be beneficial for manipulating
employees to work but at the same time may get employee dissatisfied owing to the level of
inequality of pay. The employees and the employers of an organisation can feel the
advantages and disadvantages of pay secrecy. Pay secrecy can be considered as an effective
solution for the organisations that have an educated workforce. With the increase in the level
of trust and loyalty within an organisation, it can be said that conflict can be reduced.

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