What keeps you from comparing paychecks with your colleagues? Why do so many workers flinch when they hear someone gossiping about a coworker's salary?
Most Americans probably don't think twice about the veil they drop on their own paychecks and the lack of openness in their employer's compensation practices. But Ed Lawler, a professor at University of Southern California's Marshall School of Business, has spent many years researching salary secrecy. He spoke with U.S. News about the zipped-mouth effect. Excerpts:
Do Americans tend to be more secretive than citizens of other countries when it comes to salary?
I don't know of any really systematic data that has looked at that. That's my perception, but what's unusual is that it's really a fairly narrow band of Americans who have secrecy with respect to their pay. Obviously, at the very top of organizations, pay is public. If you look at public-sector organizations—it's public. If you look at unionized situations—it's public. If you look at most people who are nonexempt employees—it's public. It's really that middle ground in private-sector organizations where secrecy is seen as the right way to manage.
Why are people or companies so secretive about pay?
One of the questions we should ask is whether it's in the company's best interest to keep it secret. One study I've done several times through the years is, in the absence of public pay, what do people assume is happening with respect to other people's pay and how their pay compares? It turns out that people tend to overestimate the pay of others in a condition of secrecy. And the best explanation I have for that is, if you listen to chatter and comparisons when people start talking about pay, the lowest-paid people rarely speak up. But you do hear the braggarts saying: Wow, I just got a big increase. So I think people in general get partial information, which seems to lead them to overestimate the pay of people around them in similar jobs and in similar situations.
Now, as to why they keep it secret—there is a sort of politeness or class thing with it. In the middle class, kids get told that it's not polite to talk about pay. It's either bragging or embarrassing. It's never something you win by talking about. It's just not nice. We don't do that.
In the United States, where we supposedly have pay for performance, you are revealing something potentially that's a bit personal about yourself. You're letting people know, maybe, how well the organization thinks you performed, how much the organization values you, and that may be something that's just uncomfortable.
I never heard my dad talk about how much he made.
Mine never did. It was not seen as appropriate or polite or whatever.
So what's the damage? What's the downside of our secrecy?
Well, part of it is what I said earlier—that individuals may incorrectly perceive how much they're valued by the organization or how effective the organization is in administering pay. You leave it up to individual guesswork, whether what the organization says about how they administer pay is, in fact, reality. So if your pay practices are pretty good, the downside is that people may underestimate how well you're administering pay. You may take away some incentive from upward movement if people don't really know how much extra there is to earn if you get promoted or you perform well.
For organizations that are really terrible at administering pay, it may be more of a good thing than a bad thing because you're hiding the ugly truth, if you will, from the employees. They may actually believe what you say.
Do you think secrecy is bad policy?
My argument has always been that it's not worth the effort to keep it secret. Yes, sometimes it leads to uncomfortable moments. I just had one here in my organization. All our pay is public—we're a contract research organization. I could keep it secret for certain people, but it's not worth the trouble to go sneaking around and try to cover it up.
So, we had to hire somebody in for slightly more than the people here were getting, and I was absolutely confident that when they found out, that they would think it was not right and unfair. So I addressed it upfront. I said: This is what's happening. I'm going to have to pay this person more and here's why, and you may not like it, but that's what it is.