The science of pay transparency

In the UK, women are paid around 10 per cent less than men, on average. One solution might be total pay transparency. Can it fix the problem and are we ready to talk about how much we earn?

28th May 2018
The science of pay transparency © John Holcroft

There is a revolution stirring. It’s taking shape in offices, around dinner tables and in newspaper headlines around the UK: people are talking about how much they earn. Keeping a polite silence around money is such a long-standing cliché of what it means to be British that for some, simply having these conversations cuts to the core of how we think of ourselves and our society.

On 5 March this year, almost 250 staff of the BBC – British by name, but no longer it seems by nature, in this respect at least – signed an open letter to the director general Tony Hall, demanding “full pay transparency”. This followed a review of the broadcaster’s pay last summer which found that only one-third of the 96 best-paid employees were women, none of whom were in the top seven. Then in April, large firms and public bodies were required to publish figures comparing men and women’s average pay, revealing that 78 per cent of them pay men more.

The BBC staff who signed the letter demanding pay transparency argue that it constitutes the “fastest, cheapest and fairest way to begin to tackle unequal pay,” and that it is the most effective way to uncover pay discrimination due to race, gender, age or class. The CEOs of those companies that have adopted the policy – so far low in number but high in enthusiasm – believe it is an improvement on the way we have always done things. But what is the evidence? Given we have laboured (quite literally) under pay secrecy for so long, what would such a dramatic shift do to our minds?

Despite its longevity, there have been some experiments suggesting that pay secrecy may be the worst possible policy we could have in the workplace, for both employers and employees. In one study by Elena Belogolovsky at Cornell University and Peter Bamberger at Tel Aviv University, participants were divided into groups of four and asked to perform a task on a computer. After each round, one set of groups saw a bar chart on the screen showing only the amount they as an individual would be paid for their performance, and they were forbidden from discussing their remuneration with others in their group over the monitored email system – mimicking pay secrecy conditions. Those in the second set of groups, working under pay transparency conditions, also saw a second bar chart showing their reward relative to other participants, and were told their email communications had no restrictions. After three rounds, the researchers found that those in the pay secrecy group performed worse and would be less willing to come back. Further studies by Belogolovsky and Bamberger found that employees collaborate more effectively under transparent conditions, as they are better at assessing the best colleague to approach for advice, based on knowledge of their salaries. Belogolovsky says: “In pay-for-performance systems, pay secrecy has a negative impact on individual task performance and retention because it weakens the perception that an increase in performance will be…

 

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