Why pay transparency

Conversations about pay transparency are increasingly becoming a thing – but how far does transparency go and why do we need it?

To put it simply - younger workers expect it. According to a Bankrate survey this year, some 42% of Gen Z workers, ages 18-25, and about 40% of millennial employees, ages 26-41, have shared their salary information with a coworker or other professional contact. These happen in face to face conversations, but equally via online platforms which make it possible for employees around the world to share offers, salaries, compensation elements and much more. The most popular ones we all hear about include Glassdoor, Blind, BuiltIn, etc.

If the fact that such large numbers of employees are creating transparency is not enough, science indicates we should be prioritising it for productivity reasons. In 2014 Professor Peter Bamberger of Tel Aviv University’s Recanati School of Business and Dr. Elena Belogolovsky of Cornell University’s School of Industrial and Labor Relations have conducted my all time favourite experiment in the workplace.

The experiment involved students who were being split into two groups and paid to perform a task. Group one was informed of all levels of pay and bonus that will be earned – their own, and their peers. Group two was only told about the pay they were going to get. In addition to that they were not allowed to discuss pay during breaks. Bamberger and Belogolovsky measured performance over several rounds of experiments and only reached one conclusion: “Secrecy has a negative effect on worker performance”.

While fairness and equity have a role to play in this, lack of transparency in this case also created a gap in the perceived expectation of additional pay for better performance — for trying harder. Transparency creates more clarity and trust for employees to perform better and want to do more.

This is a conversation we should all get comfortable with. In addition to the transparency created by employees in online platforms, there are also increasing legal requirements around this. ?Legislation in Colorado, California, as well as EU Pay Transparency Directive create frameworks for wider transparency globally.

I would love to hear more examples of impact of pay transparency on workplaces – if you have examples of good practice, or examples of company wide policies that encourage transparency- please get in touch and share!