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PRODUCTIVITY

A Very Compelling Reason to Tell Employees How Much Their Peers Earn

A recent study from Cornell and Tel Aviv University researchers suggests transparent salaries have a surprising effect on productivity.
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Do you hide your employees' salaries as closely guarded secrets? You might be hurting worker productivity, suggests research from Cornell University and Tel Aviv University.  

Cornell assistant professor Elena Belogolovsky and Tel Aviv University Professor Peter Bamberger looked at the effect that a lack of transparency has on a wage-earner's performance. They found that when employees can't clearly see the link between performance and compensation, they aren't as willing to apply themselves.

The Experiment

Belogolovsky and Bamberger studied 144 Israeli undergraduate students. They started each of them off with a base salary that they received in return for playing a computer matching game. Half of the students were told that they'd get a bonus for good performance, and they were also shown fellow participants' bonus pay.  

The other half saw only their own bonus pay, and they were asked not to discuss pay with others--a request that some companies today still explicitly make. The participants were allowed to email each other, and the researchers assessed how tolerant or intolerant the students were of pay inequity. 

"When people are in an environment where they have to guess what others make, those individuals who are less inequity tolerant not only think that they deserve to make more money, but they are less motivated to work hard," Belogolovsky and Bamberger concluded. They found that this group of participants significantly underperformed in comparison to the rest. 

Why Transparency Is En Vogue

It's easy to understand why most businesses don't embrace the idea of revealing employees' pay. It's hard enough to make everyone happy, so why introduce another possible cause for resentment or dissatisfaction? Plus, many executives climbed the ranks in a work culture where it's simply rude to discuss salaries. 

But that standard is slowly changing due to the new culture that millennials are introducing into the workforce, the authors suggested. "Many up-and-coming Generation Y employees have grown up in the public world of social media and have no issues sharing information with one another that used to be seen as private--such as pay," Belogolovsky and Bamberger wrote.

So how should you handle such a touchy subject when it seems that both sides stand to lose something? The authors suggest that you strike a balance between complete transparency and a fair system. For example, publish pay ranges and explain how they are calculated. Buffer App, creator of a social media managing tool, recently revealed its salary structure online--but went a step further and published individual salaries next to employees' Twitter handles. 

Belogolovsky and Bamberger said that above all, it's important to make sure that employees believe the system is fair. "It doesn't matter what you think," they wrote. "If your employees don't perceive it as fair, you're in trouble."

 

IMAGE: Shutterstock
Last updated: Mar 10, 2014

LAURA MONTINI | Staff Writer

Laura Montini is a reporter at Inc. She previously covered health care technology for Health 2.0 News and has served as an associate editor at The Health Care Blog. She lives in San Francisco.




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