Pay transparency study: Knowing boss’ salary can motivate people

It’s
a tantalizing piece of information.

Strelka/Flickr

• A pay
  transparency study found that learning your coworkers earn more
  than you thought can be demotivating.
• On the other hand, according to the study, learning
  your manager earns more than you thought can motivate you to
  work harder.
• Previous research suggests that most people have no
  idea whether they’re paid fairly — and that clarity around why
  certain people are compensated more than others is related to
  higher job satisfaction.

My colleague Rachel Premack
recently reported on a study that found many people are
willing to pay to prevent the horror of having coworkers from
finding out how much they earn.

An earlier study
by the same researchers —Zoë Cullen from Harvard Business
School and Ricardo Perez-Truglia from the Anderson School of
Management at the University of California, Los Angeles — yielded
similarly fascinating findings.

According to their working paper, summarized recently in the

Harvard Business Review, most people significantly
underestimate how much their boss earns — and when they’re given
the correct number, they’re inclined to work harder.

As for peers’ salaries, people were as likely to overestimate as
they were to underestimate. But when they found out that a
coworker in a similar role earned more, they were inclined to
start slacking off.

The study took place at a large commercial bank in Asia, and
involved about 2,000 employees at all levels of the organization.
Through an online survey, researchers asked employees to guess
the salaries of their managers’ salaries; they offered rewards
for accuracy.

About half the employees were then given the correct, higher
number; the other half were not given the correct number.

In the year that followed, the researchers analyzed company data
on when the employees clocked in and out of work, their email
activity, and sales performance (and yes, it’s kind of creepy
that the company was tracking all this).

Results showed that employees who found out their manager was
paid 10% more than they thought subsequently spent 1.5% more
hours in the office, sent 1.3% more emails, and sold 1.1% more.
These numbers were even higher for employees who learned the
salary of managers relatively close to them in the corporate
pecking order. It’s as though learning how much your boss (or
their boss) earns gives you something to aspire to.

On the other hand, employees who found out their peer was paid
10% more subsequently spent 9.4% fewer hours in the office, sent
4.3% fewer emails, and sold 7.3% less.

We’re inclined to feel worse about work after learning that we’re
paid less than coworkers

This study appears to be the first to test the effects of
learning your manager’s salary. Other research has looked at the
effects of finding out coworkers’ compensation.

A
2011 study, for example, led by researchers at the University
of California, Berkeley, and Princeton University found that
employees who discover they’re on the lower end of the salary
range are more likely to start looking for new jobs.

Meanwhile, a PayScale study,
described in HBR, found that found most people have no clue
whether they’re paid fairly. Case in point: Two-thirds of people
who are being paid the market rate believe they are in fact
underpaid.

Read more:


‘They got a $2 million raise last year?’: Netflix lets any exec
or director see what employees make, and people are freaking
out

Interestingly, the PayScale study also found that people feel
more positive about work when their company communicates clearly
about compensation — for example, by explaining to an employee
why they’re paid lower than market rate.

That lines up with what Elena Belogolovsky, who was an assistant
professor of human resource studies at Cornell University,

previously told me.

“You don’t have to disclose [salary] information for every single
person in the company,” she said. “But what you need to do is
make the system more transparent. You need to provide people with
information on what they can do to make more.”