How much do you earn? How much do you think your co-worker gets paid? We feel awkward and uncomfortable asking our colleague about this, just as we do not like the idea of revealing our own salaries.
Why Do Employers Keep Salaries Secret?
Studying the experience of different companies over several years has shown that when people don’t know how their pay compares to their peers, they’re actually more likely to feel underpaid. In a 2015 survey of 70,000 employees, two-thirds of those paid at the market rate said they felt they were underpaid.
Keeping salaries secret leads to “information asymmetry” — a situation when one part has much more information than the other. Two people can be paid differently for doing the same job. If an employee finds out a colleague gets paid more than them for the same work, the best case scenario is that their productivity will plummet. The worst case scenario is that they will leave, and the company will have to shell out up to 400% of their salary to replace them.
Pay secrecy also makes it easier to cover up gender pay gap — in 2020, a woman working full time earned 81.6 cents for every dollar a man working full time earned on average. If we really want to close the gender wage gap, maybe we should start by opening up the payroll.
Why does pay transparency matter?
Letting people know what you make might feel uncomfortable, but isn’t it less uncomfortable than wondering if you’re being discriminated against or being paid fairly?
Pay transparency has key benefits for both employees and employers.
First, it ensures that workers are being paid equitably for equal work. That’s better for workers in terms of fairness, and it protects employers from potential lawsuits.
Second, it builds trust. When employees feel valued, and aren’t spending cycles thinking about whether they might be underpaid, they’re more likely to be more fully engaged in their work. We know from countless studies that a more engaged workforce leads to better business outcomes.
Perhaps most importantly, business leaders have taken note of scholarly research showing that pay transparency boosts employee motivation, collaboration and performance.
Pay transparency can take different forms. It can be full transparency, when a company posts employees’ salaries for anyone, transparency within a company, making public formula for calculating pay or posting the stuff pay levels on a corporate website.
The Downside of Pay Transparency
Sharing staff salary database across a company, in fact, may be a recipe for disaster. Researchers from Princeton and the University of California-Berkeley conducted an experiment to understand whether disclosure of salaries of peers increased employee satisfaction. Those who discovered their pay fell below the median were much less satisfied with their jobs and likelier to express an intent to depart than those paid below the median but who did not get access to salary database.
This example shows how pay transparency can have decrease employee satisfaction and retention.