Pay Transparency: Will It Shrink Gender Wage Inequality or Cause More Hostilities?
Equal pay for equal work. It may sound like a simple concept, but according to statistics, it’s not a reality in America, especially when measured by gender. An Economic Policy Institute report reveals that among recent college graduates, job quality and wages for all graduates have declined, but gender wage inequality has increased. In fact, compared to wages in 2000, male college graduates earned 8.1% more in 2016, while female college graduates earned 6.8% less.
Granted, some gender wage inequality might be a result of the professions chosen by men and women. A Georgetown University analysis of the majors with the highest concentration of men vs. women reveals that women often choose lower-paying professions.
That could explain some gender wage inequality. But what about men and women who perform the same job? That’s why some opponents of gender wage inequality point to the need for more accessible information.
Pay transparency – the practice of revealing the salaries of all of a company’s employees – has been touted as one way to erase gender pay inequality. It’s based on the theory that if everyone knows what everyone else makes, companies will be forced to pay workers comparably.
But, can pay transparency cause more problems than it solves? It’s human nature for people of both genders to be victims of the “overconfidence effect,” which causes them to overestimate their own ability, aptitude, and performance. As a result, they naturally tend to think they are not being paid their worth.
According to a Payscale survey, only 37% of employees believe that they are paid fairly and only 45% think employees are valued, compared to 73% of employers who believe workers are paid fairly and 78% who believe they are treated fairly.
The Payscale survey below reveals what employees perceive they are paid, compared with where they really stand.
|Below market||At market||Above market|
|What employees paid ABOVE market think they’re paid||35%||45%||21%|
|What employees paid AT market value think they’re paid||64%||30%||6%|
|What employees paid BELOW market value think they’re paid||83%||14%||3%|
Notice that the majority of employees paid above market believe they are either below or at market. And the majority of people paid at market believe their wages are below market. How does pay transparency affect employees who already think they should be earning more?
Ignorance is bliss
A joint study by economists at UC Berkeley and Princeton found that when University of California employees were shown a website listing the salaries of all of the UC system employees, those who were paid below the median became unhappy and were more likely to look for employment elsewhere.
Brad Hershbein, an economist at the W.E. Upjohn Institute for Employment Research, explains the further results of this study. “In this instance, pay transparency at UC led to cuts in pay – and increased quit rates – among highly paid city officials, and although this could save taxpayers money, it also could mean less-qualified people in those roles.” However, Hershbein cautions that the results may not be representative of the private sector or even government workers in the rest of the country.
Ursula Mead, CEO and Founder of InHerSight, tells GoodCall® that she has witnessed the difficulties that companies experience when trying to make the transition to pay transparency.
“I once worked for a mid-sized company that tried to make the switch and the tumult and unrest it caused was incredible.” Mead says the employees at that company responded in similar fashion to those in the UC study. “People were upset, felt cheated, and considered changing jobs, and in fairly short order, the company reverted back to its former policies and approach,” Mead says.
Benefits of transparency
While pay transparency will likely cause conflicts and discontent, at the end, it can also produce several desirable effects. According to Hershbein, “Turnover at a firm is not necessarily a bad thing if it leads to better worker-employer matches in the long-run – that’s why people quit and switch jobs, after all.”
When employees look at a comprehensive list of salaries, they don’t know the factors that may determine why the wages aren’t equal. “Employers need to do a better job explaining to workers precisely how compensation will be determined; unions often accomplish this through collective bargaining, but it’s remarkably rare in employee-at-will settings,” Hershbein says.
And when the salary information isn’t provided in the context of other factors, employees might not have a clear picture of their compensation. Amelia Gandomi Lewis, owner of Advance Yourself Coaching, says she has coached leaders in start-up companies who use pay transparency, and this type of culture has fostered loyalty. “However, in larger, legacy organizations, the compensation systems are much harder to normalize against current market trends, and some non-monetary benefits are part of the total employee package – it becomes unhelpful for the organization and the employee to look at salary alone as someone’s total benefit,” Lewis says.
Usually, salary is not the only factor that determines how an employee feels about a company. One survey revealed that millenial workers were unhappy at work and 32% planned to quit within six months. However, these workers lamented the lack of regular feedback from their supervisors and felt that without it, they would not be able to grow and advance. “Certain intangibles: such as one’s career progression, company culture, and management style can have more total impact on an employee’s total satisfaction,” Lewis explains.
However, salary is definitely a factor, especially when workers perceive that it is not equal. “Based on our analysis of salary satisfaction by industry, our data suggest that increased pay transparency leads to higher satisfaction among female employees,” Mead says.
And pay transparency is a way to hold management accountable for compensation decisions – which would include gender wage inequality. In the short term, Mead believes it’s going to be painful for companies to make the switch to pay transparency. “But in the long run, I think it has the potential to solve more problems than it creates,” she concludes.