Business

Disclosure: think twice before telling colleagues your salary

You show me yours and I’ll show you mine? Colleagues generally only swap salary details with co-workers furtively. One reason is that some employers discourage or even ban such discussions. Their stance is at odds with a trend for greater disclosure inspired by pay equality campaigns.

Finland provides one example. According to Reuters, a proposed law would force employers to disclose data on colleagues’ pay to workers who suspected gender discrimination.

That could help close Finland’s 16 per cent gender pay gap. But at a broader level, greater disclosure cannot guarantee everyone a raise. A recent working paper from the National Bureau of Economic Research concluded just this. Colleagues who share salary information end up earning less as a group, the researchers found.

They had a real-world test bed for one strand of investigation. Since 2004, 18 US states have passed laws punishing employers who mistreat workers who share wage data. Many businesses pulled non-disclosure clauses from employment contracts. Workers made prolific use of Google spreadsheets to build their own pay databases.

Wages actually fell 2.6 per cent in the three years following the introduction of the laws. Researchers Zoe Cullen and Bobak Pakzad-Hurson theorise that pay transparency decreases individual bargaining power. This puts the employer in a stronger position to set wage rates.

That does not apply in highly unionised workplaces. Here, greater transparency has little or no power to change wage rates. Collective bargaining makes individual haggling less important. It also tends to pull outliers towards the mean, reducing relatively high or low pay.

Lex reckons employers have both creditable and discreditable reasons for pay secrecy. They can justifiably withhold salary data many staff would regard as personal from nosy colleagues. Some employees may be paid less because they are less useful. That knowledge would dispirit them.

Chart showing women are more likely than men to be subject to formal pay secrecy rules. Pay secrecy policies among US workers (%, 2017/2018). Almost 16% of women are prohibited from discussing pay compared to 11% of men

Pay secrecy may also be a screen for favouritism and for underpaying women and minorities. Women are over-represented in US workplaces where there is pay secrecy, according to the Institute for Women’s Policy Research. Charles Cotton of the CIPD, a UK human resources body, says: “An employer who thinks the impact of publishing salary data would be negative may well have an issue with fairness.”

The culture of “don’t ask, don’t tell” is in slow retreat. And stringent pay disclosure for chief executives has not held back their salaries.

The Lex team is interested in hearing more from readers. Please give us your take on the pros and cons of pay disclosure in the comments section below.


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