Why Salaries Absolutely Should Be Transparent…Or Maybe Not

Over the years there has been great discussion about whether companies and employees should be more transparent over salaries.

The latest salvo in this discussion comes from a Tel Aviv University and Cornell University study that finds pay secrecy can hurt individual performance.

Why? Because if employees don’t clearly see that better performers earn better paychecks, then they don’t understand that they need to work harder. In addition, top performers may be more likely to leave if they don’t understand that they’re earning more money because they’re seen as valuable, researchers say.

Despite such studies, most companies don’t want workers talking about how much they earn. For one reason, it’s easier to gain the upper hand in salary negotiations if employees are in the dark about what others are earning. For another, they fear it will damage morale and lead to spats among workers and create headaches for managers.

But Edward E. Lawler III, the distinguished professor of business at the University of Southern California, Marshall School of Business, has argued for years that leaving workers to guess about salaries can lead to problems, such as underestimating how fair the organization is being with salaries. On the flipside, he says that if you’re not administering pay correctly, then employees are going to spot it.

“You want people to challenge your pay system, because maybe they’re right. Maybe you really are doing a bad job and getting that feedback directly—and based on valid data—is a good thing because it can stimulate you to improve,” he says.

Despite such arguments, companies are so leery of employees discussing salaries that they even put rules in employee handbooks forbidding it.

Of course, that doesn’t usually stop employees. That’s especially true in workplaces that have younger workers, who have no qualms about asking colleagues about their salaries or trying to root out the information online.

In a Wall Street Journal article last year Apple employee Brian Bader related how during his orientation he was warned not to discuss pay with other workers. But he did so anyway and soon discovered that he was twice as productive as the lowest performer on his team, yet earned only 20% more.

Three months after being hired, he quit.

“It irked me. If I’m doing double the work, why am I not seeing double the pay?” he says.

That underscores the sentiment in the Tel Aviv and Cornell study, but still may not be enough to convince companies that fear legal hassles from workers claiming discrimination over pay inequality.

In addition, employers may not legally be able to prevent workers from discussing salaries. A National Labor Relations Board memo suggests that employers must allow their employees to discuss their wages online with other workers. Section 7 of the National Labor Relations Act makes it legal for employees to discuss the terms of their employment, including salary and benefits.

All these arguments mean that companies and their managers need to sit down and discuss whether revealing salaries is worth some initial discomfort with the thought of long-term gain.

If companies and managers decide to discuss pay at work, then here are some recommendations from Glassdoor:

When talking about salary with coworkers:

1. Only talk to colleagues you trust.

2. Know your motivation. Don’t bring up the subject just to brag about how much you earn. That’s never going to be a fun conversation for the other person.

3. If you plan to use the information about your colleague’s salary to negotiate with your boss, first gain the permission of your colleague.

4. Count on being disappointed or embarrassed after such a conversation. You may just find out, for example, that your salary is much less than your co-worker’s.

When talking about salary with a manager:

1. Bosses should be able to explain the pay structure in place, the company’s philosophy and pay practices.

2. Make sure you ask for a pay raise after doing well on a project.

3. If the company is rationing paper clips because times are so tight, it’s not a good time to ask for more money. Use your common sense.

4. Don’t betray the information your colleague provides about his or her salary to the boss.

Do you think transparent salaries are a good idea?

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  • Hi anita,

    Interesting debate and I would say it is tough to trust any college completely but rather than trust simply be careful around what you admit to.

    While transparency would be great, what this would highlight is more debate than clarity i.e. if someone felt that they were aggrieved, worked as hard as someone else but got half the pay, would they leave or how would this be resolved?

    At the same time, by not openly discussing you are giving employers or the organisation a lot more bargaining power, a tough one really.

    • Anita Bruzzese

      I’ve been covering workplace issues for a long time, and this is one issue that no one seems to agree on. With the amount of information online, salaries are more transparent than they used to be, but I think a lot of people are still uncomfortable if asked directly.

      • I can imagine that a lot of people would be uncomfortable. I am completely transparent but am never sure how open or up front I should be on it all..

        Thanks for the feedback Anita 🙂

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  • Sam Marshall

    I suspect it only works if done in a formal way so that all remuneration is transparent, rather than just ad-hoc peer-peer comparisons.

    Just comparing salary perhaps isn’t that helpful as it focusses attention back on $$ rather than everything else that makes a job worthwhile. It may be that Joe appreciates the flexibility and Jill the development opportunities more than the salary, for example.

    It’s a bit like tables that look only at average salaries between countries: they don’t factor in tax levels, health, education costs etc. that have a big impact on overall satisfaction.