Know how much your boss earns? It can affect your productivity.

It’s an age-old question within organizations – should employees know each other’s salaries? There is no straight answer to this. Almost two-thirds of over 71,000 U.S. employees who are paid the market rate for their positions, believe they’re underpaid because of non-transparency. 

But, what would happen if they knew?
Prof. Zoe Cullen from Harvard Business School, and Prof. Ricardo Perez Truglia from University of California, conducted a study with 2060 employees, and found that:

  • Employees underestimated their manager’s salary significantly – 5 times lesser than it actually is. But learning about the real salary figures of their bosses had a positive impact.
  • Though, employees felt that they were underpaid when they learnt about the salary of their peers within the organization. Learning about each person’s salary was detrimental to their performance. 

So, how do we leverage this conversation? 
Because complete non-transparency is not useful either.

  • Use it to train people. In Cullen and Truglia’s study, when participants learnt about the exact salary of their immediate managers, or even two levels above that, they were willing to work harder and learn how to fill their manager’s shoes. Hence, they put in 4.3% more productive hours, on an average. Use the leadership salary conversation to show career progression. Tell people what skills they need to build for each consecutive increase in leadership level. Set skill-based goals, because employees are willing to achieve it. 
  • Use it to create fairness. Gender differences in salary is a huge point of contention, and secrecy around it only creates more disparity. But, if you adhere to government regulated salary slabs, or have fixed pay for each level irrespective of who is in it, your employees will have a standard frame of reference. This will keep them feeling secure. This also eliminates room for bias, when decision makers have to define salaries for new employees. For example, Washington D.C. has one of the lowest gender pay gaps in USA, because the federal government has transparent compensation.
  • Use it to validate people. As graceful as people seemed about salaries increasing vertically in the organization, they were not as pleased learning that someone at their own level earned more than them. It brought up questions of self-worth and ability. This made employees spend 9.4% fewer hours at work. So, keep salaries at the same level as compressed as possible. This assures people that they are doing everything right to be where they are. Then, big salary jumps associated with promotions become more validating. Like they’ve earned it. 

No matter what, conversations about salaries are sensitive. Because it gets personal. Yet, as we move into open economies, and workspaces that are free of bias, we cannot hide how much we earn. The best approach – reveal numbers by the level or grade. Allow anonymity for people individually.

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