Here’s how salary transparency influences workplace relationships, hiring decisions

It’s usually considered rude to flatout ask a coworker or colleague how much they earn on an annual basis, but salary transparency is becoming more and more commonplace across the modern professional landscape. 

Mark Twain once said comparison is the death of joy, and it’s easy to imagine how the famed American writer’s sentiment can apply to workplace dynamics. Common sense tells us complete organizational salary transparency would likely lead to resentment and division among workers who can’t help but compare their paychecks to those of their office peers. 

Now, fascinating new research conducted at Cornell University and published in the scientific journal American Psychologist reports pay transparency results in a number of surprising consequences among workers – and may even promote improved collaboration and teamwork among employees. Read on to learn more.

Higher pay as a sign of competence

Somewhat surprisingly, this new research suggests people actually prefer working alongside higher-paid colleagues. However, there’s a big caveat: This is only the case when the lower-paid employee believes their higher-paid colleague possesses superior skills and may teach them something valuable. 

“There was some reason to expect that people might prefer to be higher-paid than their co-workers or teammates, but our research found the opposite to be true,” explains study co-author Kevin Kniffin, assistant professor in the Charles H. Dyson School of Applied Economics and Management, in the Cornell SC Johnson College of Business, in a university release.

Hiring is an entirely different ballgame

Crucially, though, study authors uncovered a very different relationship between pay transparency and hiring practices. The research indicates that while deliberating between job candidates, people tend to prefer hiring workers with a lower pay history than theirs. 

“I’ve long been interested in the ways in which slight—and not-so-slight—differences in salaries can generate strong reactions from people,” Prof. Kniffin adds.

“When combined with the trend toward more pay transparency in organizations, whether required by law or crowdsourced by employees, and the trend toward more teamwork and collaboration in work, it’s increasingly valuable to understand more about how people think about pay differences in relation to co-workers and potential collaborators.”

Assessing salary as a partner selection factor

To analyze this delicate and evolving aspect of modern work dynamics, the research team conducted a total of four experiments. The first included a group of 171 doctoral students focusing on economics. Subjects were told to bid for actual work and answer if they preferred to work independently or with a co-worker (while also knowing their potential partners’ bids). Close to two-thirds (65%) signified they would prefer collaborating with others who asked for a higher salary.

The second experiment featured a different collection of 171 participants. This group of online subjects were provided a scenario in which they had to choose between working alongside either a higher-paid or lower-paid colleague. Initially, the vast majority (73%) of participants wanted to work beside the higher-paid colleague. But, when study authors provided extra context explaining both potential partners shared the exact same knowledge, skills, abilities, and experience as the participant making the choice, the percentage of people who wanted to go with the higher paid colleague dropped to 60%.

The third experiment entailed asking 375 participants to name four of their actual, real-life coworkers (two they had collaborated with previously, and two they had not). After that, everyone had to imagine that one of each pair was being paid a higher salary than their own while the other was being paid less. 

Sure enough, study subjects tended to choose the colleague with a higher salary – but it’s worth noting the results weren’t as compelling as the hypothetical experiments. This time around, while choosing between two coworkers they had previously worked with, 58% went with the higher-paid worker.

“Why do people seem to have a preference to work with teammates who are higher-paid?” Prof. Kniffin says. “Our studies show that the predominant explanation is that people anticipate that they’re going to learn from that co-worker and eventually benefit themselves.”

“People seem to assume that higher pay is merited and reflects greater competence. And they seem to assume that collaborating with someone with higher pay will be beneficial—in other words, that the higher-paid coworker will share some of their greater knowledge and skills with them,” comments study co-author Angus Hildreth, assistant professor of management and organizations in the Samuel Curtis Johnson Graduate School of Management (SC Johnson College).

Pay history & hiring decisions

The final experiment conducted for this study focused on the influence of pay history on hiring outcomes. A total of 138 people with hiring experience were asked to choose among two job candidates with the exact same levels of knowledge, skills, and experience. 

In contrast to their findings up until that point, this final initiative revealed 83% of participants preferred hiring a worker with a lower salary history than theirs.

Pay transparency is likely here to stay

All in all, researchers posit their findings hold major implications for employers and employees alike as pay transparency continues to become more and more ubiquitous across organizations. For example, since 2018 about half of U.S. states have either enacted or are at least considering pay transparency laws.

So, while many people probably don’t love the idea of their colleagues knowing their salary, and plenty of workers would likely prefer to stay in the dark regarding their coworkers’ paychecks, it’s important to be aware there’s a very real possibility that information will be disclosed in the not-so-distant future.

“As teamwork and pay transparency are both continuing to trend upward across organizations,” Prof. Kniffin concludes, “our studies highlight some unexpected dynamics that people should be anticipating.”