Pay transparency laws have prompted more employers to show their workers the money. But what happens when employees know exactly how they stack up against their peers?
New research suggests knowing what your colleagues earn isn’t motivating for all employees. Armed with salary information, high-performing employees will be more likely to push for a significant raise than their lower-performing colleagues, according to a study led by University of California, Riverside associate professor of management Boris Maciejovsky.
The findings. Maciejovsky and his colleagues ran four experiments in which participants were given information not only about compensation, but also their performance rank within an organization. It’s not uncommon for employers in some industries—investment banking, for example—to share employees’ rank relative to others, Maciejovsky said. But, sharing this kind of information has implications for motivation and productivity, he noted.
Disclosing not only pay, but also rank, it turns out, can influence how aggressive workers are in negotiating salaries. Participants were more likely to ask for significantly higher raises if they knew they had a top performance ranking, the study found.
In one experiment, participants were asked to imagine applying for a new job, with the knowledge that a peer received a 20% higher salary offer at another company. Those who were told they ranked third out of 500 in the organization “asked for significantly more than those ranked in the middle or at the bottom,” even though all participants received the same information about their peer’s offer.
Another experiment found participants felt more deserving of a raise if they were told their performance ranked higher than co-workers.
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Considerations for compensation pros. These findings challenge the idea that pay transparency is a “win-win” for all employees, Maciejovsky told HR Brew: “It seems that people who are lower in the performance distribution are basically taking a step back and actually asking for less. Now this might be a negative in terms of potentially their motivation, their engagement with the workplace, with the work itself.”
Given the fact that full pay transparency may be demotivating for lower-ranked employees, HR leaders should consider taking a “nuanced” approach, thinking carefully about how they provide compensation information, and sharing it selectively, Maciejovsky said. When determining their strategy, they can consider the “ethical downstream consequences” that may come with pay transparency, such as some workers feeling marginalized.
Even as more employers are complying with pay transparency laws that have taken effect throughout the US, they’re still figuring out exactly how to tackle their strategy and approach, according to a 2024 Mercer survey. Some 43% of US participants surveyed said they were currently developing a strategy and approach to pay transparency, while 16% said they hadn’t started but planned to do so in the next 12 months.
Regardless of the approach HR pros land on, helping workers understand how they can improve their salary potential seems vital for keeping them engaged and motivated. Offering something beyond just numbers—such as training opportunities—is one way employers can engage those lower-ranking employees, Maciejovsky suggested.