While you might know about the ugly break-up your co-worker is going through, what they did over the weekend or the Netflix NFLX, +1.55% show they’re hooked on, there’s a good chance you don’t know what they earn and if they earn more than you.
Employers, on the other hand, know exactly how much you and your co-worker are making, and carefully guard the sensitive information to protect it from getting leaked, and with good reason. They don’t want to create resentment among employees.
Turns out, they may have half right in keeping a lid on company salaries. New research suggests employees don’t work as hard if they think they earn less than their co-workers, yet they work even harder if they find out that their bosses get a big fat salary.
The study was circulated this week by the National Bureau of Economic Research and written by Zoë Cullen, assistant professor at Harvard Business School and Ricardo Perez-Truglia, assistant professor at UCLA Anderson School of Management.
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In an experiment conducted using a sample size of 2,060 employees from a large commercial bank, the authors of the study found that people who believe their co-workers get paid more than they do are likely to work fewer hours, sent fewer emails and negatively affect their overall sales performance.
More precisely, the authors calculated that for every 1% increase in a coworkers’ perceived salary, workers will respond by decreasing the number of hours worked by 0.94%. In addition to working fewer hours, the study also found that a 1% increase in perceived co-worker salary also increases the likelihood of the employee leaving the company by .225%.
This demonstrates why employers may not elect to be more transparent about employee salaries, Cullen said. “If you find out peers make less than you previously thought, there is a positive effect along many dimensions we measured, including sales,” she added.
Employees may feel encouraged by their boss’s large paycheckIn contrast to perceptions about co-workers’ increased salaries, the study found that “a 1% increase in perceived manager salary increases the hours worked by 0.15%.” In other words, the perception that your manager received a raise may actually cause employees to work more hours or be more productive.
Large salaries among upper management actually incentivizes employees to work harder, the researchers concluded. One explanation: It creates an expectation that you too could earn a salary near or close to that of your boss, Cullen said.
Salary transparency is “critical” if employers want to retain staff, said Lydia Frank, vice president of content strategy at PayScale, a Seattle-based compensation software company. Employees tend to care more about their salary than, say, someone at a different company with the same job.
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How to find out if you’re being paid fairlyIt’s becoming a lot more common for co-workers to compare salaries with one another in order to help them negotiate a pay raise. Nearly one in three workers between the ages of 18 and 36 (30%) said they talk to co-workers about how much money they make.
They often do this in a workplace that promotes secrecy around salaries. In fact, two-thirds of private sector workers say discussing salaries is either prohibited by their employer or discouraged by managers, according to data published earlier this year.
At the same, just one-third of workers believe they are getting paid fairly, according to another 2017 report. Employees can see what kind of salary they should expect to earn by searching similar jobs by company and industry on sites like Glassdoor, Indeed.com and Salary.com.
