“How much money do you make?”
It’s a question that has long been considered bold, or controversial, if not outright rude. Discussing salary — even among close friends and relatives — is a common social taboo. Money, and what you earn, is often lumped together with religion and politics as impolite or too contentious for public conversation.
In the workplace, it’s even riskier territory. Many companies discourage employees from sharing paycheck figures or even explicitly require that benefits arrangements remain top secret. Even when there aren’t written policies in the books, it’s rare that colleague rate of pay makes it to lunchroom discussion.
The silence around income is not from lack of interest. A recent study, co-written by Zoë B. Cullen, an assistant professor at Harvard Business School, and Ricardo Perez-Truglia, an assistant professor at UCLA’s Anderson School of Management, found that employees are so curious, they would sacrifice days or even weeks of their own hard-earned green for a peek into what peers and managers earn. They hunger to know:
Am I earning as much as I possibly can for my position?
Is my compensation fair?
The only true answer comes from cold, hard numbers. Pay transparency — revealing the salary of all employees within an organization — is often touted as the one clear solution. If all employees know what everyone else is making, any bias or discrimination will become obvious, and organizations will be pressured to even things out. Everyone wins … right?
Traditionally, career experts say this knowledge can do more harm than good — demoralizing employees, fomenting distrust between coworkers, and hurting your chances for a future raise.
New data, collected by Cullen and Perez Truglia, shows it’s not quite that simple. They conducted a field experiment among 2,060 employees at a large, multi-billion dollar consumer bank, gathering information from administrative records, surveys, and performance figures.
The research confirmed: knowing your coworkers’ salary has a real impact on employee productivity and happiness, just not in the way everyone conventionally assumed.
Assumptions about pay structure are inaccurate
They found, there are widespread misconceptions about coworker salaries. When guessing, on average, what coworkers and managers earned, people were off about 28% of the time. Meaning, less than a third of employees could guess within 5% of their associates’ salaries.
And that can be a problem for productivity, depending on how their guesses skew.
Learning a coworker earns more decreases performance
When employees think their peers — with the same responsibilities, rank, and title — make even 1% more than they expected, it has a negative effect on all aspects of performance. They worked fewer hours, sent fewer emails, and hit lower sales margins.
Their overall satisfaction with salary, position, and responsibilities suffered. The likelihood of seeking re-assignment within the company, or looking for a new job soared.
And, they don’t seem to share the salary information they learned with their friends at the office water cooler to contribute to all-around transparency.
Learning a manager earns more makes employees work harder
Knowing the salary of a superior — the boss — also has a significant effect on performance, but in the opposite direction.
Even a perceived increase of only 1% in manager salary makes subordinates work harder, and longer hours. They send more emails. Sales figures go up. Retention improves. This boost to motivation persists for 90 to 180 days after finding out.
The effect is strongest for employees close to their manager’s position — read: a promotion or two away — but it persists for salaries of management even higher up the corporate ladder.
The bottom line: Salary perceptions impact employee behavior
Staff only seem to care about unequal pay in relation to one specific group: their peers.
Women tolerated even a gendered pay gap, as long as the male earning more held a different position. Meaning, a title or responsibilities difference makes people think differently about earnings comparisons.
While different salaries for the same title felt unfair, it was easier for employees to justify even large pay gaps between subordinate and supervisor. A higher managerial salary makes it seem like prosperity is just a little hard work away.