Will making salary public boost fairness?

Experts say this can close gender pay gap, but others warn of unintended side effects

When women know how much their male counterparts earn, they are in a better place to demand the same compensation, experts say.
When women know how much their male counterparts earn, they are in a better place to demand the same compensation, experts say. PHOTO: ISTOCKPHOTO

(NYTIMES) - Ms Carolyn Kopprasch earns US$225,000 (S$306,000) a year. Ms Maria Thomas makes US$267,890. Then comes Ms Darcy Peters with a salary of US$105,143.

That information, taken in before I exchange pleasantries with these women, feels almost illicit. All three work at Buffer, a fully remote social media company that made the unusual decision eight years ago to disclose every employee's salary online.

The goal was to close the firm's gender pay gap. It did not entirely work. It turns out that the gap between men's and women's earnings is a numbers problem; making those numbers public does not make them even.

Even when women and men work the exact same jobs, men earn more. That is partly because women are less likely to negotiate for higher pay and more apt to be penalised when they do.

"Instead of being seen as shrewd, a woman negotiating is seen as complaining," said the Institute for Women's Policy Research president C. Nicole Mason.

In recent decades, some experts have argued that there is an obvious means of closing the pay gap: making salaries public. When women know how much their male counterparts earn, they are in a better place to demand the same compensation. And companies might feel pressure to equalise pay or better explain to workers how salaries are determined.

In 2006, Denmark introduced legislation requiring firms with more than 35 employees to report on their gender wage gaps. A study examining the short-term effects of that law found it succeeded in reducing the gap by 7 per cent.

In the United States, a handful of states - including California and New York - have passed laws prohibiting firms from penalising their staff for talking about pay.

Mr Joel Gascoigne, the chief executive of Buffer, took that idea further in 2013. He not only released every employee's salary but also started using a formula to set pay, based entirely on the person's role and hometown cost of living. He was not sure how his employees would react when he announced the idea, tepidly, at an all-staff meeting. But right away it was embraced by the team, which now has nearly 100 people.

For Ms Kopprasch, Buffer's chief of special projects, the news that her salary would be algorithmically determined hit with a wave of relief. She entered the workforce in 2008, when she graduated from college into an economic crisis. It had not occurred to her to ask her new boss for more than the US$35,000 she was offered; she was happy to have any job at all.

"I thought there was a risk that if I asked for too much, I'd be considered greedy and ungrateful, and he'd say, 'Never mind, we don't want to hire you,' " she recalled.

At her next job, at an e-mail marketing company in Nashville, Tennessee, she found out over drinks one night that a male co-worker at her level was making significantly more than her US$40,000 salary. The disparity felt like a betrayal to her - but how, she wondered, could she have known? It had not ever seemed appropriate, or necessary, to ask her colleagues how much they were making.

That would not be the case at Buffer. Not to mention that Buffer's pay was significantly more generous, at a starting salary of US$70,000.

When the initiative began, some Buffer employees wondered whether making the salary information public would hurt recruitment, because competitors could offer slightly higher pay to top talent. The opposite turned out to be true: Buffer's job applications rose from 1,263 in the 30 days before the announcement to 2,886 in the next month.

However, while the talent pool expanded and morale was boosted, Buffer's gender wage gap continued to grow. In 2015, it was around 4 per cent; by 2018, it was inching above 9 per cent; and by 2019, it hit 15 per cent.

At Buffer, salaries are still determined primarily by people's roles, and many of the top leaders, including the CEO, were men. The well-compensated engineering team was also predominantly male.

Other institutions have experimented with pay transparency, with mixed results. When the University of California made salaries public, research showed that people who compared themselves with others and felt they were being underpaid demonstrated less job satisfaction, and there was more turnover.

Given the limits of how effective pay transparency can be, some experts say that it is not worth the effort, which can often be awkward. There can also be unintended side effects.

"It tends to flatten pay and delink it from performance," said Professor Todd Zenger, who teaches strategy and strategic leadership at the University of Utah School of Business.

"If your organisation isn't going to pay for performance, it may cause people to leave and find organisations that do," he said.

At Buffer, though, some employees said the pay transparency has made them feel more committed to the company. "We know it's not your typical company trying to squeeze every last dollar out of you," Ms Kopprasch said.