Transcriber: Elizabeth Wallace Reviewer: hila scherba
Thanks so much. Have you ever wondered how much your neighbors,
your friends or your co-workers earn?
Well, in some countries,
it is easier to get that information than you might think.
For example, in Finland, every November,
the media publishes the names of the 10,000 biggest earners.
They also call it the National Envy Day.
Or in Sweden, you just need an anonymous phone call
to the tax authorities to find out your neighbor’s,
your supervisor or your friend's income.
And in Denmark, everyone’s income taxes is just one click away.
During the week of tax release,
the number of searches for the income of others
exceeds the number of searches on YouTube.
While in Scandinavia, people are used to individual income information,
in most other countries around the world,
talking about income or salaries is still a taboo.
I am a senior research associate and lecturer
at the University of Lucerne in Switzerland,
where I lead the Swiss National Science Foundation project
on the effects of pay transparency.
For a full term position, my yearly salary is 114,000 CHF.
Would you also be willing to share your salary with your co-workers
or even in public?
During the next 10 minutes,
I would like to provide some arguments for employees and employers
on why it might be worth starting to talk about salaries.
Imagine a world where individual pay levels
are no longer a secret.
Would that bring any advantages to employees?
Yes. Information is power,
and knowing exactly how much other employees earn reduces uncertainty
and allows you to verify whether you’re paid fairly or not.
Furthermore, if the company displays all the pay information,
you don't have to ask your co-workers to find out what they make.
But the numbers are out there,
and so you don't have to worry about straining interpersonal relationships
or damaging your reputation.
Another advantage of transparent salaries is that it reduces discrimination.
In secretive settings, it is nearly impossible to find out
whether certain employee groups such as, for example, women, foreigners,
or temporary workers are underpaid.
But when all the numbers are available,
there is no way to hide systematic underpayment of specific employee groups.
In Switzerland, the unexplained gender pay gap is still about 8%,
and several studies have shown that displaying more pay information
and letting employees talk about their salaries reduces such pay gaps
between women and men.
Pay transparency is also beneficial for employers.
Even if employers try to restrict their employees from talking about pay,
they still do it.
According to our research,
about one third of the employees ask co-workers about their pay.
The problem is that not everyone is willing to provide accurate information
with some employees rounding a little bit up, others rounding a little bit down,
or others not providing any information at all.
And not surprisingly, also,
our research, news research, shows
that only about one third of the employees
estimates the pay levels of their supervisors and co-workers
within a +/- 10% range, leaving one third each
either significantly underestimating or overestimating
their co-workers’ and supervisors’ pay levels.
Thus, for organizations, if they provide employees with actual individual pay data,
they don’t provide employees with a platform
where they can disseminate wrong information.
And therefore, organizations don’t have to worry
that wrong information circulate
and also not rumors or speculations circulate within their companies.
Most importantly, by providing employees with individual pay data,
companies can signal that they have nothing to hide
and that they are dedicated to paying fair wages.
This, in turn, increases trust in the organization,
which is a fundamental driver of a productive workforce.
A Swiss based company named Ergon Informatiks
with about 300 employees is a very good example
that full transparency in terms of salaries and bonuses pays off.
The company has been awarded with the Swiss Employer Award several times,
indicating that employees working at Ergon Informatik
belong to the most committed and happiest employees,
and they rate the attractiveness of their employer
higher than employees of other companies.
Given all these advantages,
why are still so many organizations opposing pay transparency?
What is the reason that only a minority of companies in Switzerland
provide employees with individual pay data?
The answer lies in social comparison concerns.
People always compare themselves to others.
Satisfaction about pay is not only determined by how much I get paid,
but more importantly by how much I get paid compared to others.
If companies don't pay everyone the same,
there will always be employees that earn less and others that earn more.
So imagine you find out that you belong to the lower paid employee group.
How would that make you feel?
Studies have shown that this can foster envy and negative feelings,
especially towards the better paid employees,
leaving them less satisfied and more likely to leave the organization.
Another aspect that displaying individual pay transparency can bring
is that it can lead to escalating pay negotiations.
Imagine you find out that some of your work colleagues
earn less than you.
Would you go to the supervisor and ask for a pay cut?
I guess you wouldn’t.
But employees will ask for a pay raise if they find out
that someone in a similar position gets paid more.
From research about top executives,
we know that displaying individual pay levels
led to a race to the top effect,
letting CEO’s pay level to skyrocket in the private sector.
While employees like increasing salaries,
employers try to avoid such scenarios by compressing wages.
So in transparent settings,
salaries and bonuses are distributed more equally among employees
to avoid endless discussions and justifications.
However, by doing so, companies have less room when attracting talent
and when rewarding high performers.
Why is pay transparency working in Scandinavian countries?
In Scandinavia, pay transparency is embedded in their culture.
Since 1766, Finland provides the general public
the mass media access to public records.
And in Norway, tax returns have been openly published since 1763.
Individuals in Scandinavia grew up in an environment
where access to individual pay information is not a taboo.
Another helpful aspect is that in Scandinavia,
income is distributed more equally,
thus leaving less room for perceived unfairness.
What can we do in countries where pay transparency
is not embedded in the culture?
Is there a way to overcome the negative side effects
of displaying individual pay levels
while still benefit from the positive effect?
The answer is yes, and the solution is called procedural pay transparency.
Procedural pay transparency refers to the extent to which an organization
informs employees about the pay system and how pay is determined.
It is essential that employees understand why they are paid the way they are.
For example, do you know which criteria are used to determine your base pay?
Is it your position? How much the market pays?
Is it because of your age, your gender, your tenure?
Do you know how performance is reflected in your pay?
Are you 100% clear what you have to do to get a larger bonus
or a higher pay raise?
Being open about the procedures and criteria by which pay is determined
helps employees to understand the goals behind the pay system,
have a better understanding of why some employees earn more than others,
and what they have to do to move up in the pay band or to get a larger bonus.
The beauty of procedural pay transparency is that this information
can be given without necessarily displaying individual pay levels,
and thus social comparison concerns are minimized.
On top of it,
it provides important information about the company’s values,
strategies, priority, and culture.
First results of our Swiss National Science Foundation studies show
that being open about the procedures
and the criteria by which pay is determined has mostly positive effects.
For example, employees are more likely to perceive their pay as fair,
they're more happy with their pay.
And in teams with higher procedural pay transparency,
employees are more likely to cooperate and bear fewer conflicts.
We also examined over 500 companies in Switzerland
and found that those companies who informed their employees
about how pay raises and bonuses are determined,
they perceive themselves as more productive.
So overall procedural pay transparency is not only beneficial for employees,
but also for employers.
Surprisingly, only half of the organizations in Switzerland
provide employees with procedural pay information,
leaving half of their employees in the dark of how pay is determined.
However, when we ask employees,
they say that they would wish full transparency
So what can we do to close the discrepancy
between what organisations offer and what employees would wish for?
Are you an employee working in a secretive environment?
Start asking questions about how pay is determined.
Actively challenge a supervisor or the HR department with questions
about why you are paid the way you are and what you have to do
to move up in the pay band or to get a larger bonus.
Are you an employer that still holds back pay information?
It is time to open up now.
Scandinavian countries, as well as pioneering companies,
have shown that displaying individual pay levels can be beneficial.
If you don’t want to display everyone’s pay level within the company,
that is fine.
But employees want to know how pay is determined.
Providing employees with procedural pay information is a first step
towards breaking the taboos surrounding salaries and will open the way
to embed pay transparency in our culture.
Thank you.