One Benefit of Pay Transparency? More Productive Workers

As pay transparency becomes more common, the relatively new practice has been fraught with questions and concerns: Will it be too much of an administrative burden for employers? How much will it affect candidate attraction? How will employees react to knowing colleagues’ salaries—or having colleagues know their own?

New research offers an answer to the last question, indicating a new, and perhaps surprising, benefit to the practice: Disclosing salaries may motivate employees to work harder.

A pair of new studies suggests that if employees are aware of how their salary compares to that of their colleagues, it may compel them to work harder to prove their worth.

One study, from researchers Cédric Gutierrez of Bocconi University in Milan, Italy; Tomasz Obloj of Indiana University; and Todd Zenger of the University of Utah, specifically looked at how wage information affected U.S. academics and found that those who were overcompensated increased their efforts when salary information was disclosed. Once pay transparency revealed how academics were paid compared with their peers, the study found, higher-paid academics published roughly 7 percent more articles, on average.

Meanwhile, another study examining the effect of pay transparency on a little more than 2,000 bank workers found that once workers learned their managers earned more than they expected, they worked harder because they then saw a pathway toward career advancement.

Pay transparency can result in boosted employee outcomes in the form of greater productivity, employee engagement and an enhanced employee experience, said Muriel Taing, senior compensation consultant at consulting firm Mercer.

“When employees have more visibility into what they can potentially earn, coupled with an understanding of how they can progress in their salary range, they will be motivated to work harder and understand the tools to use to put in the effort to achieve it,” she said.

The new findings come as pay transparency gains an increasing foothold in the workplace. Heightened employee expectations around salary disclosures and new laws requiring disclosure in some parts of the country mean more employers are adding salary information to their job postings. Recent data from jobs site Indeed found that more than 40 percent of U.S. job postings on the platform now include employer-provided salary information, an increase of 137 percent in the past three years.

‘How an Employee Perceives Their Pay Matters’

Despite the potential benefit of pay transparency on employee outcomes, there is an important caveat: That positive outcome will be the case only if the employee sees their pay as fair.

The bank study, for instance, found that workers who discovered they were being underpaid relative to their colleagues grew less satisfied with their jobs and were more likely to look for a new one. 

“How an employee perceives their pay matters,” Taing said. “If an employee perceives their pay to be unfair, it can reduce employee morale, and they will be more likely to look at opportunities outside of their company where they feel they can achieve more fair pay and where they perceive it will be a more equitable exchange of the contributions they are making to the company.”

To make pay transparency work, employers need to be open about pay practices and how pay is determined at the company, she said. If employers don’t share “this context, employees may be confused about how they are being paid and question why their colleagues’ pay is similar or different,” Taing said. “If an employer decides to share colleagues’ pay across the organization, they will especially need to be clear about explaining what their company defines as the ‘market,’ since it’s unique to each company, and be clear about the factors that are considered at their company to differentiate pay, like performance ratings and experience.”

Lack of a common understanding of these two areas between employer and employee may “lead to inadvertent employee perceptions about how pay actually works at their company that companies will find themselves needing to address,” she said. She added that it’s important to realize that what matters to employees is understanding where they are paid relative to their salary range and why.

“Pay transparency isn’t only about sharing pay information,” Taing said. “It’s a broader exercise for employers to build trust and strengthen their relationship with employees by helping employees understand their salary in the context of market and business realities.”

Kathryn Mayer, SHRM

Giving Feedback: Pack It with Nutritional Value

You’re lying in bed, inwardly cringing as you think about having that conversation tomorrow—where you’ll have to tell an employee to her face that her work is subpar and corrective measures are needed.

“Those conversations are what make people nervous and frustrated and sometimes make them leave their jobs,” said Shari Harley, founder and president of Candid Culture, an international training and consulting firm based in Denver. Harley, who worked in HR for eight years, offered advice during her presentation, “What to Say When You’ve Waited Too Long: Giving Useful Feedback” at the SHRM Talent Conference & Expo 2023 in Orlando, Fla.

Oftentimes conversations about workplace behavior and performance are frustrating for the individual receiving the feedback because it lacks specifics. The manager uses what Harley calls “Cap’n Crunch” terms—verbiage that, like the children’s cereal, lacks nutritional value. Telling the employee she has a bad attitude, is not detail-oriented or is unmotivated is not specific, Harley said. The employee leaves the conversation not knowing how to correct the problem.

“This is all opinion, and opinion is subjective and … why people refuse to sign appraisals,” she explained. “You haven’t given them enough information to be helpful. People leave this conversation [thinking], ‘OK, I’m in trouble but I don’t know why I’m in trouble.’ “

Instead, Harley recommends sharing an example of how a bad attitude affected customer service, or when a lack of detail hurt a project. She offered the following formula for delivering feedback:

  1. Introduce the conversation: : “I need 10 minutes with you.” If the conversation is being conducted remotely, make sure the employee has privacy. 
    “Feedback’s always tricky and always emotional. Human beings don’t like to be told they’re wrong,” Harley said. Oftentimes they become emotional because they care enough about their job to get upset.

  2. State your motive for the conversation: “I care about your career, and I want you to be successful. As your manager, my job is to support that, and I’m seeing something that’s impacting you negatively and I want to tell you about it.”

    This is the “why” of the conversation and builds trust at the start, Harley explained. 

  3. Describe the behavior: “I’ve noticed … .” If the performance issue is not something you have witnessed, you must validate the issue, such as through confidential phone calls with individuals who did observe the behavior. In this case, start the conversation by saying, “I’m aware … .” Do not say, “Someone told me,” because the employee’s attention will be on trying to figure out who that “someone” was.

Concrete examples are a must when meeting with the employee.

“If I do not have a specific example” of the problem, Harley said, “I don’t give the feedback.”

Also, don’t overwhelm the employee with your feedback. Harley recalled a young employee whose very detailed manager gave her 24 things to work on during her performance review.

“I give a maximum of three things—preferably one or two,” she said. “If someone gets too much feedback in a short amount of time … performance dips.”

  1. State the impact of the employee’s behavior. For example, a manager is concerned after overhearing an employee speaking condescendingly about an initiative the manager introduced at a recent meeting. Although the manager asked team members for their questions and concerns, the employee sat quietly. The manager’s aim in the feedback scenario is to curb the negative behavior and assure the employee that team members can speak freely; not doing so can undercut the initiative and contribute to poor morale.

  2. Ask for the employee’s perception of the situation. Expect the employee to be defensive, but defensiveness is not a performance issue, Harley pointed out.

    During the conversation, assure the employee: ” ‘I know this is hard and I want you to think about it, and let’s talk again in a week.’ ” Harley advised. “Time in feedback is people’s friend. In a week it’ll be a different conversation.”

    Another approach is to suggest the employee talk to two or three close friends or family members about the feedback and ask if they can validate the behavior in question. Then meet again with the manager in a week.

  3. Ask the employee for ideas on how to address the issue at hand. The employee who was uncomfortable speaking up during a meeting may suggest e-mailing or meeting privately with the manager about any concerns. 

  4. Build an agreement on next steps: Acknowledge the awkwardness of the conversation and promise to provide regular feedback in the future.  

  5. Say “Thank you.”

The point of feedback is to offer enough information that the person knows what behaviors to continue and what behaviors to change, but the feedback needs to be specific and timely. When done right, Harley said, it’s like a GPS system for job performance.

“How long do we wait to give feedback at work sometimes, when someone is a little bit off track?” Harley asked. No one wants to exit the wrong ramp or be headed miles and miles out of their way, just as employees don’t want to learn their performance has been steering them in the wrong direction for weeks and weeks.

Kathy Gurchiek, SHRM

Celebrate National Small Business Week: April 30 – May 6

Sunday, April 30, is the start of National Small Business Week: An annual event that recognizes the hard work, ingenuity and dedication of America’s small businesses, and celebrates their contributions to the economy.

“National Small Business Week celebrates the resilience, innovation and economic power of America’s small businesses and innovative startups,” said U.S. Small Business Administration (SBA) Administrator Isabella Casillas Guzman in a press release. “Amidst a record-breaking 10.5 million people applying to start a new business under the Biden-Harris Administration, I’m thrilled to showcase our highly impactful entrepreneurs who build prosperity in their communities while strengthening our nation’s global competitiveness.”   

Small businesses employ nearly half of all Americans in the private sector — and in California, 4.1 million small businesses (with fewer than 500 employees) represent 99.8 percent of all businesses in the state and employ 7.2 million people, or 48.5 percent of the private workforce. Also in California,

  • Businesses with fewer than 100 employees represent 97 percent of all businesses and employ nearly 36 percent of all workers; and
  • Businesses with fewer than 20 employees comprise more than 88 percent of all businesses, employing approximately 18.2 percent of all workers

While there is no sector of the California economy where small businesses are not present, the industry most dominated by small businesses is construction, in which small businesses account for 84 percent of the sector, employing more than 500,000 employees.

During Small Business Week, which is co-hosted by the SBA and small business mentor SCORE (originally known as the Service Corps. of Retired Executives), small businesses can attend a two-day virtual summit. Held Tuesday, May 2, and Wednesday, May 3, the summit is free to attend for both established and aspiring business owners. The event includes presentations by expert speakers on such topics as:

  • Simple Steps to Write and Follow a Sustainable Business Plan that Ensures You Achieve Your Goals;
  • Getting Creative with Ads;
  • Cybersecurity & Your Small Business;
  • Future-Proofing Your Small Business for Long-Term Success;
  • Tapping Tech to Elevate Performance, Productivity, and Profitability; and
  • More.

The summit also features an exhibit hall, networking opportunities and a mentoring lounge where business owners can ask questions and get expert answers.

California small businesses are encouraged to participate, as they play a vital role in the state and national economies. Register here.

Jessica Mulholland, Managing Editor, CalChamber HR Watchdog