"In a recent study published by the Academy of Management Journal, Prof. Peter Bamberger of Tel Aviv University's Recanati School of Business and Dr. Elena Belogolovsky of Cornell University's School of Industrial and Labor Relations have published a study that explains why pay secrecy is likely to hurt an individual's work performance and prompt top talent to seek new employment. They conclude that pay secrecy weakens the perception by employees that a performance improvement will be accompanied by a pay increase. It also finds that high-performing workers are more sensitive than others when they perceive no link between performance and pay; suggesting that pay secrecy could limit a company's ability to retain top talent."
So who, if anybody, benefits from pay secrecy?
While it is true that government pay is often public (or within a small range that is public), usually there is no financial incentive for superior performance either.
The point of this article is that people who do better work than their peers should be able to see that they're making more money than their peers, or they'll just do whatever they can get away with.
Certainly I've seen this effect firsthand. When employees feel like they've gone all-out but for whatever reason they get an average or below-average (for them) bonus, it is a huge motivation killer. I've found that even though pay and performance are supposed to be linked at my workplace the reality is that it has more to do with your relationships with the next level of managers and being on the right projects than actual effort. While I certainly endeavor to do quality work, I have to say that knowledge of how the rewards system works in practice taints my priorities.