God yes. This should just be basic employer-employee decency. Don't fuck around with people's lives just because you might save a buck. ESPECIALLY when you're getting much more from them (Which is just how employment goes).
It basically enshrines the idea of employees not being treated fairly. If you can't discuss your pay, you can't know you're getting gypped.
Now, people might disagree on what level you happen to be at technically... but still it seems like you are saving an incredible amount of time and effort by moving the decision to simply "how good are they" and then making the money decision after that solves a whole lot of problems.
Steve McConnell (or more accurately, I suppose, Construx) with the Professional Development Ladder (http://construx.com/Page.aspx?nid=244) was an early advocate for this idea, and Spolsky has discussed it a couple of times as well.
Cash has limited motivational power, but it's akin to the physiological layer on the hierarchy of needs. If you're getting a shitty salary it's harder to give a damn about the success of the product or company.
That being said, also brilliant is the idea mentioned to let people exchange one or more tiers of compensation for stock if they so chose.