Pay secrecy might actually reduce employee performance, study finds

Researchers found that there was a direct link with pay secrecy and decreased performance

How much do you think your colleagues get paid? Our salaries are one of the few remaining details of our lives considered strictly private. 

But pay secrecy might actually reduce employee performance, while transparency boosts motivation and effort, according to different studies.

Researchers Elena Belogolovsky of Cornell University and Peter Bamberger of Tel Aviv University evaluated 280 undergraduate students on their productivity and found that keeping salaries secret was associated with decreased staff performance.

Participants were paid a basic salary to finish three rounds of a computer game with bonuses paid according to their efficiency. Each student was assigned to a four people work group but games were played individually. 

Everyone was given the opportunity to communicate with one another between rounds, but those in groups where pay was kept secret were restricted from discussing anything related to pay.

Researchers found that there was a direct link with pay secrecy and decreased performance.

Results decreased even further when students in the pay secrecy groups were told that their salary was relative to the performance of other participants, which they could not see.

Another study of 2,000 people found that openly sharing pay information improves performance, according to Emiliano Huet-Vaughn, an assistant professor of economics at Middlebury College.

Participants had to complete a task, after which they were shown their earnings and those of other members of the study. Others received information regarding only their own pay.

Those who knew what other people performed much better than the ones who were left in the dark, the study found.

David Burkus is the author of Under New Management, in which he looks at the growing number of companies, like Whole Foods, which are transparent about pay. He said the two studies showed not only how pay secrecy put a damper on individual performance but also how full transparency boosts performance.

“When people know where they stand and know what it will take to move up, they’re more motivated to work to improve both their performance and their standing – and that’s good business for everyone,” he wrote in the Harvard Business Review.

Burkus previously argued that keeping salaries secret makes it easier for companies to discriminate. 

The gender pay gap for all full-time workers was 23 per cent in the US, according to a 2011 report from the Institute for Women’s Policy Research. But in the federal government, where pay rates are transparent and based on uniform standards, the gender pay gap shrunk to 11 per cent.

Whole Foods, the US supermarket, introduced pay transparency across the company in 1986. 

“If you’re trying to create a high-trust organisation, an organisation where people are all-for-one and one-for-all, you can’t have secret,” John Mackey, CEO of Whole Foods, said.