Publishing salaries openly reduces gender pay gap

Publicly displaying employee salaries can significantly reduce pay inequities according to a study of nearly 100,000 academics across the US.

Tomasz Obloj, associate professor of strategy and business policy at HEC Paris business school and co-author of the study, spoke to HR magazine about the findings.

He said: “The first result is a very strong causal effect of transparency on pay discrimination.

“We can attribute a roughly 40% decrease in the gender pay gap following pay transparency.”

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Obloj and his co-author Todd Zenger similarly found that transparency reduced pay inequality by up to 20% – meaning that there was up to a 20% reduction in differences in pay between individuals generally across their academic departments or institutions. 

Obloj said: “Wages become more compressed so there’s a lower difference between high performers and low performers.”

While pay transparency has increased as a solution to discriminatory and unequal pay, many organisations have been reluctant to implement it. 

One fear has been that transparency will damage employers’ ability to link individual pay with performance.

Obloj said: “Incentives are still important, but the strength of the incentive is lower. 

“That explains the lower difference in salaries between superstars and folks who perform a little bit worse, which means that the compensation per [performance] outcome becomes lower.”

For businesses to continue to use bonus pay as an incentive without disadvantaging one group of people in particular, they could move to a system where they publish pay awards, and justify differences through performance-based metrics.

Obloj explained: “[Publishing pay] makes organisational designers more accountable, so they would have to come up with a measurement of individual performance that would allow them to justify pay differentials.”

Jemima Olchawski, chief executive of women’s charity the Fawcett Society, told HR magazine that there are simple, evidence-led, steps employers can take to close the gender pay gap.

She said: “If you base your job offer on past salary, you bake in inequality for women, people of colour and disabled people. If you don’t publish salaries, you harm their ability to negotiate fairly.”

Not taking these steps, she added, may even expose employers to future claims of inequitable pay. 

She added: “All employers should take these steps now - and sign up to our pledge so their future employees can note their commitment to change.”