Who Benefits When Salary Info Is Public?

“What the transparency seems to do is that it dampens the performance-based incentives,” said Tomasz Obloj, an associate professor at Indiana University Kelley School of Business who co-authored the paper.

LaKeisha Caton, a partner at the law firm Pryor Cashman who advises companies on employment-related matters, said that she discusses the potential for pay transparency to compress pay with clients. “I think that’s just the other side of the bargain,” she said, noting that without transparency’s effect of nudging salaries to the middle, “women and minorities tend to do the worst in those circumstances.”

With pay transparency, Ms. Cullen noted, some differences that are related to performance may be wiped away, but the same may happen to differences related to discrimination.

One explanation for why some types of pay transparency tend to weaken the link between income and performance is that this disclosure weakens individual bargaining power. If salaries are public, employers can claim that giving one worker a raise would mean that they would have to give everyone a raise. Workers may also be less likely to try to bargain in the first place if there’s a public salary range for a position.

“They see the posted price and think, Hey, I’m not going to be able to ask for more because obviously they’re not going to change their entire website, which applies to everybody, on my behalf,” Ms. Cullen said. She was a co-author of a working paper for the National Bureau of Economic Research that found wages on average fell by 2 percent when laws protecting pay transparency were introduced in the United States.

There are other ways that employers may benefit from pay transparency. For example, some research suggests that when wages are more transparent, employees tend to work harder.

In an experiment at a large commercial bank in Asia, Ms. Cullen and a co-author found a similar result: Workers tended to underestimate the salaries of their managers. When the bank made salaries public, they learned they would earn more than they had if they moved up the ladder and put in more effort.

Article source: https://www.nytimes.com/2023/01/14/business/pay-transparency-public-salary-information.html