It doesn't really create a race to the bottom. What it does do is basically let the most profitable firms set the salary scale. When they raise salaries, everyone matches for fear of being seen as a cut below. Nobody cuts salaries because doing so is very conspicuous in a market where most firms pay the exact same salary. So I think in that sense, transparency has the effect of pulling up the median salary and is good for employees, though not necessarily employers. On the other hand, it takes pressure off the top firms. The most profitable firms don't raise salaries unless they really have to, because they know that if they do it'll move the whole market upward and any recruiting advantage will be short-lived. So in that sense it's probably a bit worse for people at the top who might make more otherwise.

I think using salaries as incentive systems is mostly hokum except for situations where performance can be very easily quantified (e.g. sales people). I think transparency combined with lockstep (pay is strictly by seniority) is a great model, at least for organizations where everyone is mostly doing the same kind of job.