'Pay secrecy' is a deterent to working harder, study shows

The more salaries are kept secret, the worse performance, U.S. and Israeli researchers find.
by Paula Burkes Modified: July 6, 2014 at 3:00 pm •  Published: July 6, 2014
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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.

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by Paula Burkes
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A 1981 journalism graduate of Oklahoma State University, Paula Burkes has more than 30 years experience writing and editing award-winning material for newspapers and healthcare, educational and telecommunications institutions in Tulsa, Oklahoma...
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