A woman with glasses — one lens is transparent, the other opaque

Transparent or opaque?

Transparency, especially when it concerns people’s incomes, may not be as desirable as we think

Koen Smets
6 min readFeb 23, 2024

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Relativity is widely associated with Albert Einstein (even though many people have, at best, only a vague idea of what the special and general theories of relativity actually entail). But in fact, relativity is a concept that is deeply rooted in the human psyche since well before Einstein’s theories. We cannot handle the absolute very well, and almost always rely on the relative. Is a car’s fuel consumption high, a shirt cheap, a travel destination distant, a building tall, and so on? We can only answer such questions by comparing the relevant quantity with something else that is relevant. A particular case is what we — and others — earn. Whether we judge our pay acceptably high depends (a lot!) on what we think other people are paid. Yet, our income is something that most of us tend to keep really quite secret. How come, and would more transparency not lead to more fairness?

The double-edged sword of transparency

We tend to believe that we are better than average (this is considered “one of the most robust of all self-enhancement phenomena”). We would therefore expect our wage to reflect that by also being above average. Disclosing our pay would allow other people to compare ours with their own, and might lead to resentment if they are paid less, or to a sense of superiority if their salary is higher –neither of which we would enjoy. Naturally, others feel the same, so we generally remain silent about our wages, and continue to rely on external signals of wealth to judge where we are in relation to others.

The idea that more transparency (especially in so-called “executive” pay for top managers) would curb excessive salaries was put to the test in the UK during the 1990s and the early part of this century. However, while the matter is complex, it doesn’t seem to have had much effect. Quite the opposite, as it happens, since top pay, including bonuses, has continued to accelerate away. Just as we like to think we are better than average and thus deserve a higher pay than average, the top companies want to be seen to pay top whack (e.g., in the upper quartile). Disclosure leads to a kind of race to the (moving) top between top…

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Koen Smets

Accidental behavioural economist in search of wisdom. Uses insights from (behavioural) economics in organization development. On Twitter as @koenfucius