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?

BBC Earth (Asia) - - Contents - WORDS BY MOYA SARNER

Are we ready for pay trans­parency, and can it fix the gen­der pay gap? Moya Sarner in­ves­ti­gates

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 fol­lowed by in­crease in pay.”

The ev­i­dence seems clear: se­crecy ob­structs pro­duc­tiv­ity. But what hap­pens in a real work­place? Here, the case for trans­parency grows more opaque.


Re­searchers Jordi Blanes i Vi­dal and Mareike Nos­sol at the London School of Eco­nom­ics sought to an­swer this ques­tion us­ing data from a Ger­man whole­sale and re­tail firm which be­gan in­form­ing its em­ploy­ees how they were paid, and how pro­duc­tive they were, rel­a­tive to their col­leagues. As a re­sult, pro­duc­tiv­ity im­proved by 6.8 per cent.

But when David Card, pro­fes­sor of eco­nom­ics at the Univer­sity of Cal­i­for­nia, per­formed an ex­per­i­ment on other staff at his univer­sity, the re­sults were not so pos­i­tive. Ran­domly cho­sen staff mem­bers were sent a link to a web­site set up by a lo­cal news­pa­per which listed the salary of all state em­ploy­ees, in­clud­ing those work­ing for UC – with no in­for­ma­tion about pro­duc­tiv­ity lev­els – and then sur­veyed them about their pay, job sat­is­fac­tion and job search in­ten­tions.

Un­sur­pris­ingly, he found that work­ers who were paid be­low the me­dian in their de­part­ment felt less sat­is­fied in their job and in­tended to look for another. But those who were paid above the me­dian did not re­port any sig­nif­i­cant im­prove­ment in job sat­is­fac­tion or shifts in their in­ten­tion to move. The neg­a­tive im­pact of pay trans­parency among those who earned less was not off-set by the pos­i­tive im­pact among those who earn more, and that means, ac­cord­ing to Card, “em­ploy­ers have an in­cen­tive to main­tain pay se­crecy.” Lit­tle won­der it has been the norm for so long.

Joel Gas­coigne, CEO of the so­cial me­dia man­age­ment plat­form Buf­fer, be­lieves the in­cen­tives for pay trans­parency are far greater. He is com­mit­ted to what he calls “rad­i­cal trans­parency”, pub­lish­ing not just the salaries of all his em­ploy­ees but also rev­enue data and de­tails of di­ver­sity of his em­ploy­ees. “When we moved to pay trans­parency within the com­pany, most of our con­cerns were around the un­cer­tain­ties of what might hap­pen,” he ex­plains. “It is still a very un­com­mon prac­tice, sothere were al­most no re­sources to look at or peo­ple to ad­vise us. But we found that all of these con­cerns were un­founded and hy­po­thet­i­cal, and that the mas­sive ben­e­fits far out­weighed chal­lenges – there was an im­me­di­ate growth in the level of trust among team mem­bers, and the over­all sen­ti­ment was very pos­i­tive. Know­ing how much ev­ery­one else was mak­ing, know­ing the for­mula used and see­ing it was fair was com­fort­ing for peo­ple.”

When the salaries were pub­lished on­line for the gen­eral public, it was not quite so straight­for­ward, he ex­plains. “That was a lit­tle more psy­cho­log­i­cally chal­leng­ing, and we had more con­ver­sa­tions and dis­cus­sions about it. There were some fears that peo­ple had around what may hap­pen once their salary is public for the world to see and know. To­day at Buf­fer, in­ter­nal pay trans­parency is in­cred­i­bly im­por­tant and some­thing we don’t de­vi­ate from. But when it comes to public trans­parency, we now al­low team mem­bers to opt out, for ex­am­ple, if there are per­sonal safety con­cerns.”

It’s not easy, he adds, but it’s worth it: “Pay trans­parency, like many other forms of trans­parency, re­quires ex­tra work. It takes time to cre­ate a clear and fair com­pen­sa­tion sys­tem, and it re­quires main­te­nance and ex­pan­sion over time (we’ve had sev­eral it­er­a­tions of our for­mula). Ar­guably the com­pany could move faster on cer­tain ini­tia­tives, and per­haps even have higher growth, at least in the short term, if we didn’t hold our­selves to the level of trans­parency we do. How­ever, when you take a long-term mind­set, it is a very easy de­ci­sion to put in the ef­fort. It breeds trust by re­mov­ing any abil­ity to use con­trol of data to hold power, and by open­ing up all the in­for­ma­tion for any­one to ques­tion. It en­ables in­no­va­tion by en­sur­ing that the whole team has all the in­for­ma­tion at their dis­posal to make key de­ci­sions – usu­ally only top level ex­ec­u­tives have all the cards. It leads to fair­ness and greater jus­tice by invit­ing any team mem­ber and the greater public to ques­tion or call us out on our com­pen­sa­tion sys­tem.”

After Gas­coigne took the de­ci­sion to go trans­par­ent, he re­ported a huge in­crease in the num­ber and qual­ity of ap­pli­cants to Buf­fer. This is key, says Sir Cary Cooper, pro­fes­sor of or­gan­i­sa­tional psy­chol­ogy and health at Manch­ester Busi­ness School: sim­ply telling peo­ple what they are paid in re­la­tion to their col­leagues is not enough. It has to lead to some­thing more. Asked if pay trans­parency is, psy­cho­log­i­cally speak­ing, a good thing, he heaves a big sigh.

“I think it would be a good thing if the trans­parency also led to open­ness,” he says. “If the or­gan­i­sa­tion had man­agers who were open to peo­ple com­ing to them to do dis­cuss, openly, their own value and worth and fair­ness. If they have that kind of cul­ture, I think it could work. If they don’t, then I think it might cause con­flict and prob­lems.”

For Bel­o­golovsky, too, trans­parency in it­self can only be part of the so­lu­tion: “I be­lieve that the real is­sue is not whether pay should be trans­par­ent or not but rather whether the com­pen­sa­tion sys­tem is eq­ui­table, well man­aged and well com­mu­ni­cated. Nei­ther a trans­par­ent pay pol­icy where em­ploy­ees can com­pare salaries nor pay se­crecy is a so­lu­tion for an un­fair sys­tem. In prac­tice, how­ever, at least some de­gree of pay trans­parency is nec­es­sary in or­der to con­vince em­ploy­ees that the or­gan­i­sa­tion’s com­pen­sa­tion sys­tem is eq­ui­table and fair.”



The less fash­ion­able, ar­guably more re­al­is­tic ap­proach to this ques­tion is to recog­nise the true im­pact that re­veal­ing this kind of in­for­ma­tion might have. Robyn Ve­sey from Tav­i­s­tock Con­sult­ing says we need to think about how an or­gan­i­sa­tion’s sys­tems and struc­tures can af­fect its em­ploy­ees psy­cho­log­i­cally, and the im­pact our un­con­scious mo­ti­va­tions and pro­cesses have on our work and our col­leagues. The ques­tion of who gets paid what in re­la­tion to whom brings up ex­tremely com­plex feel­ings, she says: “It’s about num­bers and it’s about more than num­bers. Who de­serves what is such a key anx­i­ety of our age, whether you’re talk­ing about claim­ing ben­e­fits or pay in high level jobs.”

She sug­gests one ben­e­fit of or­gan­i­sa­tions keep­ing salaries se­cret is that it helps to man­age anx­i­eties that ac­com­pany feel­ings around recog­ni­tion. “Pay is very charged, in that it’s linked to these sorts of emo­tions. There are ways in which the cur­rent sys­tem works to keep in place some as­pects of com­pe­ti­tion and of ri­valry across all em­ploy­ees, to con­tain some of the strong feel­ings peo­ple might have about their re­mu­ner­a­tion,” she says.

This might sound like a counter-in­tu­itive ap­proach – but that is why it is so im­por­tant to re­flect on it, Ve­sey ex­plains. “In our age, we don’t of­ten con­sider the flip­side of hav­ing more in­for­ma­tion. At a psy­cho­log­i­cal level, there is al­ways a con­se­quence of shar­ing in­for­ma­tion that is irrational as well as ra­tio­nal, and that bal­ances the as­sump­tion that the im­pact is al­ways pos­i­tive.”

That is why hail­ing trans­parency as some kind of cure-all must be overly sim­plis­tic. Be­cause although de­bate around trans­parency and the gen­der pay gap might ap­pear to be eco­nomic, it is also pro­foundly psy­cho­log­i­cal; it is about be­ing and feel­ing val­ued.

“This is the thing about pay trans­parency,” Cooper tells me, “It’s about what it says to you as the in­di­vid­ual em­ployee about whether they value you or not. It’s about more than the money.” If we think of the con­cept of value as the in­ter­sec­tion of psy­chol­ogy and fi­nance, it is clear that while trans­parency might shine a light on the prob­lem, shar­ing in­for­ma­tion will not solve it: em­ploy­ers need to put their money where their mind is.

ABOVE: In the UK there’s a 9.8 per cent me­dian pay gap be­tween men and women

ABOVE: At Buf­fer, which de­vel­ops and sells so­cial me­dia tools, a pol­icy of com­plete pay trans­parency has been in­tro­ducedABOVE LEFT: Would you be happy with your payslip be­ing open to public scru­tiny?

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