Why pay transparency is good for business

A leading management professor talks about the benefits of freely discussing salaries and lists five levels of openness for companies to consider.

Why pay transparency is good for business
“Few things in the workplace are as closely guarded as salaries. But companies are starting to realise that pay secrecy may be a bad thing – for the employees, the company and the economy in general,” Dr David Burkus said.
 
In an article for the Wall Street Journal, Burkus, an associate professor of management at Oral Roberts University, talked about how transparency around salaries can actually benefit a firm.
 
Research conducted by Emiliano Huet-Vaughn, an assistant professor of economics at Middlebury College, found that being open about pay can actually increase productivity in a group, he said.
 
The reverse is true too with another study by Elena Belogolovsky of Cornell University and Peter Bamberger of Tel Aviv University finding that pay secrecy decreases performance.
 
A lack of transparency can also enforce the gender pay gap and other types of discrimination, he added.
 
To tap into these benefits, Burkus said there were five options which companies could choose from to provide varying levels of transparency within the organisation.
 
  1. Allow staff to speak openly about pay amongst themselves without fear of receiving an official warning or being fired
  2. Set up tiers with the pay ranges of corresponding job titles and share this information openly amongst staff members
  3. Create a standardised pay formula for calculating salaries and then disclose this to all employees within the company
  4. Open up about the actual pay that everyone in the company is receiving through a formal announcement or salary document
  5. Make salary information about everyone in the firm available for outsiders to see through a publicly available website
 
Some of these steps will be more applicable than others depending on how open a firm wants to be about pay. For instance, providing complete salary information to the public might not make sense if a firm is worried that this data could give competitors an advantage, Burkus said.

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