Gone are the days of hush-hush salaries and hidden bonuses. Companies like Whole Foods, Salesforce and Buffer are leading the way in promoting pay transparency by allowing employees to easily access salary and bonus information. And it’s not just the private sector; even former President Obama had proposed collecting pay data by gender, race, and ethnicity from businesses with over 100 employees in the US. Across the pond, the UK and other European countries are also actively discussing the benefits of salary transparency. It’s time to open up the conversation and level the playing field by looking into a recent study that shows that pay transparency is good for business.
The idea of revealing your salary to your colleagues may seem daunting and uncomfortable to many of us. However, for some, especially younger people and employees of companies that practice pay transparency, it could be a crucial step towards a more equitable workplace. The rationale behind pay transparency is that it becomes more difficult to pay employees unfairly when their salaries are open to public scrutiny.
A recent study provides solid data to support this argument. Researchers Tomasz Obloj of HEC Paris and Todd Zenger from the University of Utah’s business school compiled salary data from nearly 100,000 academics in eight US states over a span of 14 years. Their findings, which will soon be published in the journal Nature Human Behaviour, reveal that pay transparency (which is already in place in some states) had a significant impact on both pay equity and pay equality among academics, particularly with regards to gender.
The Power of Pay Transparency
The study’s results underscore the importance of salary transparency in creating a more equitable workplace. When salaries are open and transparent, it becomes more difficult for employers to justify pay disparities based on factors such as gender, race, or age. Additionally, pay transparency can help employees negotiate better salaries and benefits, particularly those who may have been historically underpaid due to systemic discrimination.
For a long time, talking about pay or salary transparency in the workplace was considered a no-go area. However, the tide seems to be turning rapidly.
While pay transparency is not a silver bullet for solving all issues related to pay equity and equality, it is undoubtedly a step in the right direction. As more companies and organizations adopt pay transparency policies, we can hope to see greater fairness and equity in the workplace.
Once wages and rewards are made transparent, both internal and external pressures arise to close any gaps, according to Tomasz Obloj, one of the researchers behind a recent study on pay transparency.
What’s remarkable is just how effective transparency can be in reducing unfairness, particularly with regards to the gender pay gap. In organizations that disclosed salary data, the gender pay gap was reduced by up to 45%, compared to those in the study that didn’t make such data public.
Another positive outcome of pay transparency is the reduction of pay inequality, which dropped by around 20%. This phenomenon, which Obloj calls “wage compression,” causes all salaries within an organization to become more similar, with fewer outliers.
Implications of Publicly Disclosed Salaries
The study also yielded a third finding, one that could have important implications for companies considering salary transparency. When salaries were publicly disclosed across organizations, the link between pay and performance weakened by about 40%. In other words, in transparent companies, higher salaries were less closely tied to observable metrics like publications, grants, patents, or books.
Interestingly, however, achievement and pay were still more clearly linked in transparent companies than in their non-transparent counterparts, thanks to the availability of data-driven performance metrics. While work achievements may have been rewarded less highly in transparent companies, the rewards that were given out were based on more objective and verifiable criteria.