I recently covered a new study that found, not surprisingly, that job satisfaction declines when workers find out they are making less than their peers. What was a bit shocking was that finding out they made more than their peers had no effect on workers at all. It got me thinking about how better disclosure on salaries might help people get paid what they're worth.
Economists at the University of California at Berkeley and Princeton made use of a 2008 Web site created by the Sacramento Bee newspaper, which lists the salaries of all state employees, including faculty and staff at the University of California. The researchers contacted a random subset of employees at three UC campuses, informing them about the existence of the site. Some 80 percent of those contacted checked out their colleagues' wages.
A few days later the researchers surveyed all campus employees about their use of the site, their pay and job satisfaction and how likely they were to search for a new job. They compared the answers from workers in the treatment group (who were informed of the site) with those in the control group (who were not). Then they matched survey responses to the salary data.
For people below the median income in their department or work unit, knowing what others earned made them less satisfied with their earnings and jobs overall, and increased the likelihood of searching for a new job. "By comparison, those who are paid above the median experience no significant change in any of these outcomes," the researchers write.
So in an uneven pay environment, the taboo on sharing salary information helps lower-paid workers avoid painful envy. This de-motivating force is one reason employers strongly enforce pay secrecy. "A lot require you to sign an agreement that you won’t disclose your salary," said David Card, who co-authored the paper with Enrico Moretti and Emmanuel Saez of Berkeley and Alexandre Mas of Princeton. "But if the labor market operated like an idealized market, public information would be the standard. The neoclassical setting effectively assumes there is a market wage, everyone knows it and everyone should get it — and that’s definitely not what’s going on. It’s the discretionary element that’s making people unhappy."
For example, one of the problems at UC Berkeley, Card said, "is it’s a very strange wage-setting system, and there’s a huge amount of discretion. Salaries are set on the basis of your last job offer; (bosses) respond on a case-by-case basis to keep the people they want. So people who aren’t out looking for job and don’t bring in an offer don’t get big wage increases. We don’t have any kind of standardization, so it’s very common for people objectively to be doing similar work" and have different salaries.
But on the downside, pay secrecy hurts competent workers who don’t realize they deserve more in an environment where salaries are discretionary. Being dumb may make you happier, but it’s no good for your bottom line. When you’re able to get more intelligence on what the market will bear, "some of the information you’re learning is what you can negotiate," said Card.
Although not many companies are offering raises in the tough economy, It’s not a bad idea to position yourself for a pay hike when the recovery finally comes. Get some perspective by visiting sites such as salary.com, payscale.com; see if a professional association or industry group in your field conducts salary surveys. (If you work in the public sector, do an internet search to see if your state has a database similar to California’s.)
If your salary is way below the median, find out why. Examine your annual performance reviews. How have you gone above and beyond the call of duty? Have you promoted your accomplishments to the right people? Document the ways you have added value to your company and helped it achieve its most important goals. Then look for an opportune time to discuss a raise – at your next performance review, or at the beginning or end of a major project.
Don’t hand your boss an ultimatum unless you’re ready to leave. And if your firm doesn’t have the cash for a raise, how about more time off, or a bonus attached to a specific project? If you do find out what your co-workers make, I wouldn’t mention it in your negotiations. Your goal is to get paid what you’re worth, not to overhaul an employer’s questionable compensation policies.