United States

Why Knowing How Much Your Colleagues Earn Could Be a Good Thing

Maskot | Getty Images

Would you like to know how much your colleagues earn? What if they knew your salary?

As it turns out, you could both stand to gain from being open about income, according to new data which points to the direct role of transparency in tackling entrenched pay disparities.

In a study of 100,000 U.S.-based academics, researchers Tomasz Obloj of HEC Paris and Todd Zenger from the University of Utah's business school compared their salaries over 14 years and found that pay transparency (now commonplace for colleges in many states) had a major impact on both pay equity and pay equality.

Pay equity refers to how fairly individuals are paid, particularly with regard to gender, while pay equality refers to how similarly individuals are paid relative to their peers in the same institution or industry.

Most strikingly, it found that pay inequity — specifically the gender pay gap — fell by up to 45% in transparent organizations as compared with those that didn't disclose such data. And pay inequality dropped by around 20% when pay transparency policies were introduced.

The research, set to be published later this year in the "Nature Human Behavior" journal, pays heed to the argument that compensation transparency makes it more difficult for employers to pay their staff unfairly. Just this week, a former BNP Paribas employee won a payout of 2 million pounds ($2.7 million) in compensation for gender discrimination after learning she was paid 85% less than her male colleague for an equivalent role.

"Our results suggest pay transparency has a significant and economically sizeable effect in reducing pay inequality and inequity, including by gender," the report said.

Three possible outcomes

Greater pay transparency leads to three possible outcomes, the report found.

One, employers may adjust the salaries of those most underpaid and overpaid. Two, individuals may seek work elsewhere based on salary injustices, prompting employers to reassess their pay. Three, the correlation between performance and pay may be weakened.

The result? Overall pay allocation becomes "more fair, equitable, and less discriminatory," the report said.

"Pay transparency appears to pressure those who assign pay to more aggressively remedy inequities in the allocation of pay," it added.

Resistance to pay transparency

Still, resistance to pay transparency remains strong, particularly in the private sector.

Many employers argue that such policies undermine their ability to link pay to performance, making it harder to attract and motivate top talent. Indeed, one study of U.S. employers found that 41% actively discourage employees from sharing information about pay with their peers, while 25% explicitly forbid it in a bid to preserve existing systems.

The report itself found that when salaries were made publicly available, the link between pay and performance was reduced by around 40%. However, it added that such a shift in performance metrics could simply lead to a shift away from individual projects and toward more team-based, collaborative work, without compromising on productivity.

Copyright CNBCs - CNBC
Contact Us