Downside to Full Pay Transparency?

Full pay transparency gives all employees access to the salaries or hourly wages of every other worker in the organization.

But is this a good idea?

Proponents have good reasons to divulge this data including closing the gender gap, motivating workers and attracting talented hires.

However, according to Dr. Todd Zenger, University of Utah professor, writing in the Wall Street Journal, “pay transparency can demoralize employees and drive talent away…especially when it isn’t clear why some people are paid more than others.”

Zinger says that both ideas have merit. It all depends on the situation. In the extreme, company policies that ban employees from sharing pay info are on shaky legal ground and the practice can alienate workers, who think of it as a gag order of sorts.

When companies begin the transparency process, it’s important to study the salaries of all employees and justify why some are higher than others. There must also be merit-based ways for employees to increase their paycheck. No matter which path a company takes, it can benefit from this crucial step.

According to the journal, full pay transparency works in two scenarios – when all employees are paid the same as each other of the same rank, location and years worked for the company. The government uses this system.

The second method is merit-based and every employee has the same chance to increase income by reaching the same performance objectives as other workers.

According to Forbes, both methods can impact how employees work in groups. A Cornell University study found that when company-sanctioned salary lists are not available, employees imagine things that aren’t true.

Forbes says when employees know how much peers earn, they are more likely to work with their higher-paid co-workers and ask for help to increase their value to the organization. If pay information is not shared, workers lack the ability to gauge talent, and cooperation with peers decreases.

A Yale University study found the opposite. It concluded that salary sharing reduces teamwork and collaboration. Research exposed a tendency to lessen cooperation and economic equality.

Researchers explained that previous studies ignored economic fairness. As income was revealed to the participants, cooperation dipped dramatically. The same effect did not appear when subjects didn’t know what the company paid peers.

Fairness must be the basis of any pay system. Employees leave or decrease effectiveness “when they believe others are receiving unfair pay or perks Dr. Zenger says. But it’s not so easy for employees to properly judge one performance from another. Resentment grows.

According to a Princeton University with the University of California, Berkley, when the school websites posted employee salaries then sent letters to random workers who accessed the website. Targeted employees were less satisfied with their jobs and gave indications of leaving the organization when others of the same title made more.

But employees cannot judge their performance objectively. This “makes rewarding performance in a way that employees deem fair rather difficult,” Zenger says.

Companies are better off adopting the government model, basing pay on experience, job title and location, and axing pay for performance.

But a hybrid method is the best choice – paying for performance and publishing a salary range for workers performing the same job, but not revealing who gets how much. “The organization will avoid the toxic effects” of resentment and dissatisfaction.”

These adopters should encourage what they want within the objectives they set for higher pay.

Experts clearly disagree on whether or not to reveal salaries. The best a company can do is evaluate salary levels for each title and objectively assess where to go from there.


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Tamera Shaw is a freelance writer for Insured Solutions based in Louisville, Kentucky. She writes fiction and enjoys amateur photography. She happily shares her life with husband Ron, daughter Cate and sage cat, Sophie, who grudgingly shares her home with the newest member of our family – Nieko, our new kitten.


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