This paper studies how pay transparency affects organizations that reward employees based on their efforts (i.e., using “subjective performance evaluation”). First, we show that transparency triggers social comparisons that require the organization to pay its employees an “envy premium”....

What happens when employers would like to screen their employees but only observe a subset of output? We specify a model in which heterogeneous employees respond by producing more of the observed output at the expense of the unobserved output. Though this substitution distorts output in the...