Pay Transparency: Pros and Cons

The pros and cons of pay disclosure will be discussed Tuesday by experts at an ILR School livestream open to the public. 

Speakers at “Pay Gaps are Real: Is Pay Transparency the Answer?” include Peter Bamberger, Ph.D. ’90, research director of ILR’s Smithers Institute and the Domberger Chair in Organization and Management at Tel Aviv University’s Coller School of Management; Jacqueline M. Ebanks, executive director of the New York City Commission on Gender Equity; Evandro Gigante,  Proskauer Rose partner and co-head of its Employment Litigation & Arbitration group, and Brian Levine, Mercer's pay equity leader.

As of Nov. 1, New York City employers will be required to disclose minimum and maximum salaries for job openings. Nationally, a number of municipalities are considering controversial pay transparency laws.

According to Bamberger, author of the forthcoming Oxford University Press book, “Exposing Pay:  Pay Transparency and What it Means for Employees, Employers and Public Policy,” research shows that pay transparency can:

• Potentially boost performance and help retain top performers, but can spark counterproductive work behavior.
• Reduce the risk of gender or race/ethnic-based pay inequities, but may generate envy. 
• Motivate those receiving more pay to stay and those at the low end of the pay ladder to seek other jobs. 

Best practices around pay disclosure, Bamberger said, include not attempting to restrict employee pay disclosure, taking steps to boost employee pay knowledge and conduct periodic pay equity audits.

Tae-Youn Park, associate professor of human resource studies at the ILR School, who examines how employment policies and practices such as compensation affect employers and employees, commented this week on the law going into effect Nov. 1.

“We can expect that the New York City pay transparency law will help reduce pay inequality between different gender and racial groups,” he said. “The salary information helps employees raise concerns more accurately and comfortably regarding pay gap issues, and forces managers to be more careful in making pay allocation decisions.”

“While not detrimental for companies, some concerns for businesses stem from the same phenomenon: pay transparency reduces pay inequality. Some degree of inequality is actually necessary to achieve equity, and some studies show that pay transparency can reduce the size of pay inequality driven by performance or merits. This happens because people are more likely to rely on objective metrics when making pay decisions. Although this may make the justification easier, it is possible that people’s contributions that are not easily measurable (e.g., helping colleagues) are rewarded less by pay.”

“Compressing the pay level differences can still be good for the organization (e.g., creating cooperative and harmonious culture) reducing social comparisons and envious emotions. However, this is something that companies may need to be aware of.”

Tuesday’s event is co-sponsored by the ILR Institute for Compensation Studies, ILR Labor and Employment Law Program and Cornell SC Johnson College of Business.