As workplaces increase their inclusiveness measures, the buzzword “pay transparency” is on the tip of HR managers’ tongues.
In the UK, activists are campaigning for a “Big Salary Reset” on the heels of research that highlights that asking applicants about their former salary package is “unfair,” especially for women and people of color. Meanwhile, in some US states, including New York, it is now mandatory to include salary scales in job postings.
Moreover, whether it is mandatory or not, Generation Z are increasingly taking matters into their own hands by declaring their salary for their colleagues (and the world) to see on social media, in the hope of ending pay gaps and discrimination.
As a result, employers are now wondering whether they should get ahead of the trend – and possible legislative changes – and start sharing their employees’ salary information before they are forced to, or worse, that they are called out on TikTok.
But many fear that pay transparency is nothing more than a recipe for trouble.
Pay transparency and bitterness at work
The main concern of executives with pay transparency is that workers will be bitter if they find out what their peers are earning or how much their boss is taking home.
But according to new searchthe opposite is true: when workers find out how their earnings compare to others, it can motivate them to work harder.
The authors, Cédric Gutierrez of Bocconi University, Tomasz Obloj of Indiana University, and Todd Zenger of the University of Utah, examined the impact on productivity at US public universities where pay transparency came into force several years ago.
Professors found that higher-paid scholars produced about 7% more papers, on average, once transparency efforts revealed they were overpaid relative to their peers.
The data suggests that making wage information public makes workers feel like they have to prove their worth.
Another study also found that employees worked harder after discovering that their managers were earning more than expected, as this indicated a path to career growth.
These motivated employees also worked longer and generated higher sales revenue, according to professors Zoë Cullen of Harvard Business School and Ricardo Perez-Truglia of the University of California, who conducted the research which analyzed 2,060 employees. of bank.
But, there was a big caveat in both studies’ findings.
The tension rises when the salary is really unfair
Researchers have consistently found that productivity responses vary depending on what transparency reveals.
When bank workers discovered that they were underpaid compared to what their peers were earning, their job satisfaction declined and their likelihood of seeking other employment increased.
Although increasing the salaries of managers has had a positive impact on the productivity of ambitious workers, horizontal salary differences are perceived as unfair and due to “non-meritocratic factors such as luck and office politics”, wrote Cullen and Perez-Truglia.
So, if pay transparency reveals that a worker earns more than their peers, it negatively impacts the efforts of those working alongside the generously paid employee.
Similarly, research investigating the impact of pay transparency in academia has echoed the fact that productivity declines when high levels of inequality are revealed.
“Importantly, we find that these behavioral responses are not driven by absolute wage differences, but instead result from equity considerations or performance-conditioned wage comparisons,” Gutierrez, Obloj, and Zenger wrote.
They conclude that the research underscores the importance of reviewing compensation processes to ensure that employees are rewarded for fair reasons.