What Happens When Companies Stop Keeping Salaries Secret

moneygossipAuthor: Jordan Weissmann
Source: Slate.com

Before I interviewed Carolyn Kopprasch, the chief happiness officer at social-sharing startup Buffer, I took a moment to look up her salary. It was simple to do, since the number is posted right on Buffer’s blog—along with what all of her colleagues make and the company’s formula for setting pay. Kopprasch earns $148,000 per year. Buffer’s CEO, Joel Gascoigne, takes home $175,000. Tom in engineering gets $84,000.

At most workplaces, salaries are treated like state secrets: rarely shared and frequently gossiped about. But last year Buffer decided to join the handful of companies that have opted instead for radical transparency, making it possible for employees to find out what each of their co-workers earns. Buffer then took the idea a giant step further by making that information public, as part of a wider effort to share the startup’s inner workings with the entire Web. The move generated headlines and, according to Buffer, a wave of interested job applicants.

“What is wonderful about it is there’s no question mark” about what everybody earns, Kopprasch told me. “There’s no speculation, which has helped us to trust each other.”

For some workers, the idea of their salary posted on the company intranet might sound mortifying—the financial equivalent of having nude selfies leaked online. Pay is one of the few remaining details of our lives most of us are taught to think of as strictly private. Employers prefer us to treat it that way, too. According to the Institute for Women’s Policy Research, about 60 percent of all private-sector workers say they are either banned or discouraged from talking about pay issues at their jobs, even though U.S. labor law protects their right to do so.

There are plenty of public policy reasons to worry about all this secrecy. Keeping pay hush-hush makes it easier for companies to discriminate against women and minorities, while making it harder for workers to organize. As Lilly Ledbetter knows all too well, it’s tough to complain about being underpaid if you’re unaware of it.

Fairness concerns aside, academics have long wondered if pay secrecy might actually be bad for businesses themselves. Studies in the 1960s, ’70s, and ’80s, for instance, suggested that keeping salaries under wraps left employees dissatisfied with their jobs and less motivated. One touchstone paper found that managers overestimated how much their subordinates and peers earned, but underestimated their superiors’ salaries. In our imaginations, nobody is paid what they’re actually worth, and that might make it tough to get revved up for work.

In more recent years, research into the effect of pay secrecy on job performance has yielded more mixed results. Some studies suggest that employees fare better when they know what their fellow workers make; some suggest they fare worse. Much of it probably depends on personality. In an experiment last year, 144 undergraduate engineering students were asked to play a video game in which they could win bonus money. Before participating, the subjects took a survey measuring how much they were prone to worry about unfair pay at work. Come game time, the worrywarts under performed when every player’s earnings were kept secret. Once earnings were made public, the non-worriers under performed. Either way, someone was at a disadvantage.

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