If You Knew Your Boss's Salary, Would The World Be More Fair?

boss salaryOn Tuesday, Senate Republicans blocked passage of the Fairness Paycheck Act. Democrats argued that the bill would finally allow women to fairly fight unequal pay in court. Republicans countered that it would unfairly burden employers.

And it all got messy and political in that "war on women" way.

But there is one part of the Fairness Paycheck Act that could have been a true and tested gift to women: Finally making it illegal for employers to fire someone for asking what a co-worker makes.

Most private sector companies guard their pay scales like Willy Wonka guarding the recipe to his everlasting gobstoppers. Nearly two-thirds of private sector employees say their companies outright ban or discourage employees from chatting about their salaries.

Many employers, and employees, are frightened of their salaries getting out. Your take-home pay is a pretty personal thing after all: It supposedly indicates your value; it determines where you can live, and what you can eat, and how you can play when you go home at night. And if you discover that a new recruit is paid a lot more than you, it might stir up resentment. It might bludgeon morale.

But if you take a look at the companies that voluntarily take an open book approach to salaries, it turns out that this isn't true at all.

A Brave New World, Like Whole Foods

Whole Foods Market famously shares its data, and any employee interested in the salary of another employee "can simply open the binder that exists in every store and see who got paid what in the previous year, from [CEO] John Mackey on down," reports the Loyalty Factor.

Whole Foods has won pretty much every employee satisfaction award in the book, from Glassdoor's "Employee's Choice 50 Best Places to Work," to The Boston Globe's "Top Places to Work Globe 100," to Fortune's "100 Best Companies to Work For" (the latter for 13 years in a row).

Most companies seeking more transparency, like Costco Wholesale Corp. and Dell Inc., don't just let their employees open a book and read a co-worker's income, however. They're more likely to simply communicate pay ranges, policies and raise structures, and generally explain to employees in detail why they take home what they do.

The Curse Of Comparison

Several studies have found that people will always compare their salaries against the salaries of others. Usually those salaries are just a product of hearsay, of estimates on websites like Glassdoor, Salary.com and Payscale, and of people's own imagination.

A 2008 survey of 10,000 employees by Corporate Executive Board Co. found that these informal sources almost always made employees feel worse about their own pay. If a company provides that information effectively itself, CEB estimated, employee "intent to stay" would increase by 34 percent, and worker effort by 15 percent.

And there's good evidence that a lot women would get a significant pay bump. While the gender wage gap for all full-time employees is 23 percent in the public sector, where salaries are a lot more transparent, it's just 11 percent, according to an Institute for Women's Policy Research survey.

A Not-So Free Market

It's a basic principle of classical economics that financial markets will always generate the right prices, taking into account all the information available. But when it comes to salaries, there isn't a whole lot of information available. And when it comes to judging their worth on the market, women have way less information than men.

Basing salaries on prior salaries punishes women who are already paid less. Women also drastically underestimate their own job performance. Women significantly underestimate their own intelligence. Women are less likely to ask for a raise or promotion. Even when women make jokes in the boardroom, 70 percent of the time they are making fun of themselves.

In a 1985 survey of 1,500 managers, compensation administrators and union officials, 44 percent rated women's "willingness to work for less money than men" to be a very or extremely important factor in the pay gap.

That might be because women are taught that to be feminine is to be agreeable, friendly and non-confrontational. Maybe it's because typical "women's jobs" are historically low-paid (teaching, nursing, child care). Or maybe it's because a lot of women are in jobs traditionally held by men, surrounded by men, and don't want to kick up a big fat fuss.

Fear Of The Unknown

But when everyone knows everyone else's salaries, women can better assess if they're underpaid, and what their value to a company really is. In many cases, it seems, this doesn't stoke resentments, but rather makes them melt away.

Ann Price was the only woman on her team, which was consulting for General Electric, until her underling asked her for a raise and she discovered that he out-earned her, reports the Little Pink Book. In her new role as CEO of software company Motek, there was a completely transparent salary policy "from the receptionist right up to the software engineers."

And she found that people actually became less anxious about pay, and more respectful of each other. "It's the unknown that creates infighting," she said. And in 17 years, she claims no one has complained once. In fact, some employees even chose to defer their bonuses, until the company was doing better.

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