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25 Nov. 2014 | Comments (0)

Slowly but surely more information is available to employees about what others are paid in US corporations. Over the last thirty to forty years, the movement toward making pay public has grown, but it still has not reached the point where information about the pay of individuals is available to most employees. Is this a problem? I believe that it is.

When corporations are left to decide on pay amounts without any public accountability, all too often they make decisions that are simply not defensible, ethical, nor fair. Secrecy leads managers to make bad decisions that are discriminatory and bad from a talent management point of view. This happens because secrecy takes accountability out of play. Not all accountability, of course, but accountability to those whose lives are being directly affected by the pay decisions of managers. Employees are not in a position to understand the decisions that are made about them–decisions that affect their lives in very important ways. They have to rely on what their managers tell them about the fairness of pay decisions, the reasons for the decisions, and what they can count on in the future. All too often managers fail to provide the right information, and in many instances provide misleading information. A major reason for this is that they cannot be held accountable for the decisions they make by the individuals whose lives they affect.

In many of the articles that are written about why we should have pay openness, it is characterized as a women’s issue or a minorities’ issue. There is a good reason for this. Secrecy has had a more negative impact on these two groups than on white males, but secrecy should not be seen as just a women’s or minorities’ issue, it is an employee issue. Employees need information about what others are being paid in order to make an informed decision about the fairness and basis for their pay. They also need it to decide the amount of trust and confidence and career commitment they should give to their organization.

Without reasonably comprehensive pay information, it is impossible for employees to know how they are being treated by the organizations they work for, and therefore, to be able to make good career decisions. “Trust me, you are being paid fairly” is simply not a good enough answer for organizations to give to their employees. Pay is too important to be left in this space.

Organizations often defend their secrecy policies by arguing that it increases organizational effectiveness. A major contention is that making pay public will lead to high levels of dissatisfaction and non-stop debates about what individuals should be paid. The simple fact of the matter is, there is an enormous amount of research on the effects of individuals knowing more about pay. The results do not support the argument that it decreases pay system effectiveness. In fact, the research shows just the opposite.  Pay systems are most effective when pay information is public.

Admittedly, if an organization does a terrible job of administrating pay and this becomes public, this can harm the organization. But on the other hand, if the organization is doing a good job, making pay public can often make the pay system a more effective contributor to organizational effectiveness. Ironically, there is good reason to believe that organizations that do a good job of pay administration lose the most with secrecy because they don’t get the credit they deserve for doing it well.

The only question that I have about pay openness is whether the pay rates of individuals should be made public because of the personal privacy issue here.  There is no question that pay ranges, mid-points, and distributions should be in the public domain. But what about the pay of individuals? I think despite the personal privacy issue, it is reasonable to make all individuals’ pay public. This practice should be made clear to employees when they join the organization, and if they see this as a serious invasion of their privacy, then they can choose to work elsewhere.

Just to repeat the point: pay fairness requires openness. The attitude of “don’t ask, don’t tell”, does not work in anybody’s favor. It is an outdated philosophy that simply does not fit today’s business environment. It does not lead to more effective organizations, but most importantly, it does not lead to fair pay decisions. When I have made this argument to organizations time and time again, they agree with me, and say, “Yes, we will make pay public, but we need three to four years to make our pay rates defensible and the pay determination process effective.” Needless to say, they never end up making pay public because in the absence of public pay, there is insufficient motivation to administer pay in a fair and effective manner. In short, when it comes to pay, individuals should ask and organizations should tell.

  • About the Author: Edward E. Lawler III

    Edward E. Lawler III

    Edward E. Lawler III is Distinguished Professor of Business and Director of the Center for Effective Organizations in the Marshall School of Business at the University of Southern California. He …

    Full Bio | More from Edward E. Lawler III


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