Keeping salaries secret isn't necessarily good for business.
Credit: Men keeping secret image via Shutterstock
Employers that keep workers' salaries secret may end up with less-effective employees, new research suggests.
The study, published in the Academy of Management Journal, suggests that employees get frustrated when they think their co-workers, who may not perform as well, might be getting paid more than them. Moreover, pay secrecy can hurt work performance and prompt top talent to look for a new job, the study also found.
The researchers discovered that secret payrolls weaken employees' perception that a boost in their performance will lead to a raise.
For the study, the researchers paid 280 Israeli undergraduate students a base salary of $5.70 an hour to play a computer matching game. Half of them received information about their pay and the pay of fellow group members in the experiment, while the other half received information only about their own pay. The students who did not know how much everyone else was making were told not to discuss any pay-related issues during the experiment.
The researchers found that high-performing participants were more sensitive than others when they perceived no link between performance and pay. These results suggest that pay secrecy may hinder a firm's ability to retain top talent, the researchers said.
Additionally, when students in the secret-pay group were told they were being paid based on how they performed compared to their peers, their performance and retention decreased. When applied to the workplace, the researchers said, this could lead to a decline in employee performance and increased turnover.
The researchers also found that the negative effects of pay secrecy on employee performance and retention decreased when workers were told that performance was assessed objectively, rather than subjectively.
The findings suggest that subtle "signals" in the way human resources policies are communicated and implemented can influence employees' perception of workplace uncertainty and inequity, leading to poorer performance and higher turnover.
The study — conducted by Elena Belogolovsky, an assistant professor at Cornell University, and Peter Bamberger, a professor at Tel Aviv University — was published online in January in the Academy of Management Journal.