What You Need To Know About The Effects of Salary Transparency

What You Need To Know About The Effects of Salary Transparency

Tomasz Obloj of HEC Paris and Todd Zenger from the University of Utah’s business school compiled the salaries of almost 100,000 US-based academics in eight states over a period of 14 years.

Their findings show that pay transparency had a big effect on both pay equity, how fairly the academics were paid, particularly in regards to gender, and on pay equality, how similarly the academics were paid compared with their peers.

Once wages and rewards become transparent, there is both internal and external pressure to close those gaps, Obloj observed.

But the extent to which making pay transparent helps erase unfairness was remarkable, he said. The gender pay gap, for example, was reduced by up to 45% in transparent organizations compared to those in the study that didn’t disclose such data.

Inequality of pay also dropped by about 20%, Obloj said, noting that pay transparency leads to what he called overall “wage compression,” whereby all the salaries in a given organization become more similar, with fewer outliers.

Obloj and Zenger came up with a third finding that could also hold lessons for companies exploring pay transparency: When salaries were made public across organizations, the link between pay and performance was significantly weakened, by about 40%, meaning, in this situation, that higher academic salaries were less closely tied to observable metrics like publications, grants, patents, or books.

The authors also noted that while work achievements were rewarded less highly in transparent companies, the link between achievement and pay was actually more clear and data-driven in transparent companies than in their non-transparent counterparts.

A real world case of salary transparency has been going on at Buffer, a company based in San Francisco with a remote work force, that has been publishing how they do everything, including but not limited to how much and how they calculate salaries.

If you’re interested you can check out exactly how much everyone, including the Founders and CEO make at Buffer here.

If you implemented some sort of transparency like salaries in your company I want to hear from you. Please reply to this email with what you do and I’d love to have you on the EDGE to talk about it.

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