Salary transparency is also quite strong among chief executives across the economy. Public companies are required to report this information. Is it any coincidence that executive pay has been rising over the past few decades? Each CEO wants to be paid above average, so pay ticks up.
Salary Secrecy May Make Inequality Worse
Of course, salary transparency won't suddenly make all industries as lucrative as working as a banker or CEO. But lacking information on pay could result in workers making less money than they should be. Salary secrecy may make inequality worse.
Linda Barrington, an economist and Managing Director of the Institute for Compensation Studies at Cornell University's School of Industrial and Labor relations, worries that wage transparency in some groups but not others widens inequality. In fact, this could be part of the reason for why CEO compensation has risen by so much while the pay of most other workers has risen by so little.
But she also doesn't see salary transparency as a silver bullet for better income equality either. "Transparency creates pressure for more equality within a group, but not necessarily across a group," she says. More information on pay across the economy might not move the bottom quartile of wager earners significantly nearer to the top quartile, for example. But it could prevent one group that has transparency, like CEOs, from pulling away from the rest of the pack that lacks information on pay.
A Win-Win Situation for Employers and Employees
Even if compensation transparency doesn't cure inequality, however, it could make the labor market more efficient. Economists David Card, Enrico Moretti, and Emmanuel Saez from Berkeley and Alexandre Mas from Princeton, recently published a research paper that examined what effects more information on pay has on worker satisfaction. In California, all state employee salaries are public information. The researchers informed University of California employees of a website containing this information and analyzed their job satisfaction after those workers obtained pay information.
The results were what you might expect for those whose pay was below average within their peer group: they weren't thrilled. They were more likely to be unsatisfied with their pay/job and search for new work. The worse the individuals' pay was relative to the median, the worse their satisfaction. Those at or above the median, however, experienced no change in job satisfaction or job search intention.
These economists conclude that pay transparency just makes workers who are on the low-end of the pay scale feel worse about their jobs, so it accomplishes little. Linda Barrington notes, however, that this contention misses a benefit of being unsatisfied: the likelihood of moving on.
In theory, those who are paid less than their peers are likely to be poorer performers. Since managers want strong performers, these people would likely be better off -- from both their standpoint and that of management -- to look for work elsewhere. Their talents and abilities might be better suited to another job, which would match that improved performance with better pay. The previous employers could also then find new employees for the newly vacant positions who could better fit their mold and meet their expectations.