The widespread understanding in the workplace that salaries should be kept secret adversely affects work performance and prompts top talent to seek employment elsewhere, researchers from Cornell and Tel Aviv universities have found.
Such pay secrecy policies weaken employees’ perceptions that pay raises will accompany performance, according to a study published in January in the Academy of Management Journal.
Moreover, high-performing workers are more sensitive than others when they perceive no link between performance and pay, results indicate.
Though it’s illegal to ban employees from discussing pay, it’s generally still taboo for workers to talk about salaries, said Elena Belogolovsky, of Cornell, who co-authored the paper with Peter Bamberger of Tel Aviv University.
When employees sign employment contracts, they’re often asked not to discuss their compensation, Belogolovsky said in a phone interview with The Oklahoman on Wednesday. Similarly, most companies discourage workers from whispering around water coolers about earnings, she said.
Though websites such as glassdoor.com and salary.com often are consulted for negotiating salaries, the sites’ data doesn’t necessarily reflect pay at most companies, Belogolovsky said.
Meanwhile, very few employers, she said, offer fair and objective, performance-based pay systems.
Experiment, computer play
For the study, 280 Israeli undergraduates were paid a base fee to play a computer game for one hour. Half of the participants were told the bonus they all would earn, but the other half were informed only about their individual bonuses and asked not to discuss wages during breaks in the game.
By measuring performance and peer perceptions repeatedly over several performance rounds, researchers found “when pay is kept secret, it signals to workers that managers have something to hide,” Belogolovsky said.
But the adverse effects of pay secrecy are less negative when pay is measured objectively, she said.
Performance and retention went down when students in the pay secrecy group were told they were being paid based on how they performed compared with peers, she said. However, negative effects of pay secrecy thinned, she said, when students were told performance was assessed on a scale of absolutes.
The research was based partly on a finding from earlier studies that participants unaware of their peers’ earnings tend to underestimate how much successful performers earn, while overestimating how little poor performers earn, Belogolovsky said.
“When the economic gap is imagined to be so minimal between good and bad performers, the employee thinks that working harder just isn’t worth the effort,” she said.
Ban illegal salary chatter
Elaine Turner, a labor attorney with Oklahoma City-based Hall Estill, cautions employers about discouraging salary discussions, particularly among nonmanagement employees.
Turner points to a recent case where the National Labor Relations Board found a San Francisco clothing store violated the National Labor Relations Act for firing three employees who’d posted wage and other complaints on Facebook. The store subsequently reinstated the workers.
“Under the NLRA, employers can’t prohibit employees from discussing and complaining about terms of employment, which compensation falls within,” Turner said. The act doesn’t apply to supervisors, but it does apply to nonmanagement employees across union and nonunion workplaces, she said.
When she worked as news editor of The Claremore Progress, Pat Reeder said she used to read the printed legal notices of the salaries of county workers and “get mad every time I saw how much some of them made.” But since she’s worked as a contracted state employee — in public relations for the Will Rogers Memorial Museums — Reeder said she’s heard no complaints of hers or others’ salaries, which are public record.
Meanwhile, Troy Jones, president of Oklahoma City-based Access Financial Resources Inc., voluntarily makes his and his 13 other staffers’ salaries public companywide.
“We have an open books policy where anyone can have access to any information on the company finances, including compensation,” Jones said. “We also accompany that with an understanding that everyone has a custom-fit compensation plan, and any concerns should be brought to the attention of the employer, not other employees,” he said.
The policy causes him to be more proactive with the company compensation plans, Jones said.
Meanwhile, few employees check the books and turnover has remained very low, he said.
The solution, Belogolovsky said, isn’t necessarily to make pay systems completely open, but to make them more transparent and fair, and communicate clearly about them.
“Employees need to understand how to get from Point A in a salary range to Point B,” she said. “It’s also important to make sure that employees perceive the system as fair. It doesn’t matter what you think,” she said, “if your employees don’t perceive it as fair, you’re in trouble.”