An inside look at transparent, or secret, pay practices.
Are organizations better off to keep salaries in the dark or be transparent? That depends.
Jaclyn Koopmann, associate professor in Management at the Harbert College, co-authored “Best Not to Know: Pay Secrecy, Employee Voluntary Turnover, and the Conditioning Effect of Distributive Justice,” which revealed that the effects of pay secrecy or transparency ultimately depend upon employees’ perceptions of distributive justice.
Distributive justice is a perception of how fair pay outcomes are in relation to employees’ work efforts and contributions.
“It is important to recognize when employees perceive their pay is equitably distributed, adopting pay secrecy may harm retention,” Koopmann said. “For these organizations, our findings suggest it is better to be more transparent regarding pay and how it is determined.”
For employees who feel underpaid compared to performance levels, pay transparency yields more turnover.
“If employees have negative impressions about how equitable pay is, pay transparency in a way forces them to confront these unfair conditions, making them more likely to quit,” Koopmann added. “In contrast, more secretive pay practices keep employees in these environments from feeling too badly.”
In other words, what you don’t know won’t hurt you.
“When there’s uncertainty, people are able to deny there might be something negative in their workplace,” Koopmann added. “This would apply to pay secrecy. If people don’t have full proof or certainty regarding potential unfairness, it’s possible that people don’t have as strong of a reaction.”
However, Koopmann suggests that organizations survey employees to assess how fair they perceive their pay to be relative to their efforts at work. Doing so would give organizations a solid basis for judging distributive justice perceptions among employees and allow them to take steps to improve those perceptions by building equitable pay systems. Then, firms can use pay transparency to further boost employee trust and retention.
The article was published in the Academy of Management Journal.
