As workplaces increase their inclusivity measures, the buzzword “salary transparency” is on the tip of HR managers’ tongues.
In the U.K, activists are campaigning for a “Great Salary Reset” on the heels of research that highlights that asking candidates questions about their previous pay package is “unfair”—especially to women and people of color. Meanwhile, in some U.S. States including New York, it’s now a legal requirement to include salary ranges in job ads.
Plus whether or not it’s mandated, Gen Z are increasingly taking matters into their own hands by declaring their pay for co-workers (and the whole world) to see on social media, in the hopes of outing wage gaps and discrimination.
As a result, employers today are questioning whether they should get ahead of the trend—and possible law changes—and start sharing their workforce’s salary information before they’re forced to, or worse, they’re called out on TikTok.
But many worry that salary transparency is nothing more than a recipe for trouble.
Salary transparency and workplace bitterness
The main concern among executives when it comes to salary transparency is that workers will be bitter if they find what their peers are making—or how much more their boss takes home.
But according to new research, the opposite is true: When workers find out how their earnings stack up against 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 how productivity was impacted at U.S. Public universities where pay transparency came into effect several years ago.
The professors found that higher-paid academics produced roughly 7% more articles, on average, once transparency efforts revealed they were overpaid compared with their peers.
The data suggests that making salary information public makes workers feel like they have to prove their worth.
Another study similarly found that employees worked harder after they discovered their managers earned more than they expected, because it signaled a pathway for career growth.
These motivated employees also logged longer hours 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 bank workers.
But, there was a big caveat in both of the studies’ findings.
Tension rises when salary is genuinely unfair
The researchers consistently found that productivity responses vary based on what the transparency reveals.
When bank workers found out they were being underpaid relative to what their peers were earning, their job satisfaction decreased and their likelihood to look for another job went up.
Although increasing the salary of managers positively impacted the productivity of aspirational workers, horizontal salary differences are perceived as unfair and down to “non-meritocratic factors such as luck and office politics,” Cullen and Perez-Truglia wrote.
So if salary transparency reveals that one worker is outearning their peers it negatively impacts the efforts of those working alongside the generously paid employee.
Likewise, the research studying the impact of pay transparency in academia echoed that productivity decreased when high levels of inequality were revealed.
“Importantly, we find that these behavioral responses are not driven by absolute differences in salaries but rather arise from equity considerations or comparisons of performance-conditioned pay,” Gutierrez, Obloj and Zenger wrote.
They conclude that the research points to the importance of reviewing pay processes to ensure that employees are rewarded for fair reasons.