The Flip Side of No Pay Secrets

A new study finds employees become 10% less productive if they know that their peers are making more, but are more productive if their managers are being paid well.

Employees are becoming a lot more aware of one another's salaries these days. And as they do, a new study shows, it appears to affect how much they work.

According to a new study by the University of California, Berkeley, employees became less productive—by about 10%—when they learned that their coworkers made more money than they expected. But they put in more hours when they discovered the same thing about their bosses’ salaries (even when their bosses were taking home up to twenty times more than they were themselves). “If you saw your peers’ salaries, whether higher or lower, this could have some potential negative impact,” says Brian Bloom, Korn Ferry’s vice president of global benefits. “If your boss is doing well, it can motivate you.”

None of this would have been an issue a generation ago, when discussion of salaries was taboo. Today, though, there’s been a steady rise of platforms that disclose compensation, as well as a shift in people’s views about sharing their incomes. One recent survey found that 42% of Gen Z and 40% of millennials have discussed their pay with a colleague or professional contact.

Across the board, there has been increased advocacy for salary transparency. In states like Colorado, Maryland, and Nevada, employers are required to include a pay range in job postings, or to disclose it upon request, or after the first interview. Several other states are moving to pass similar legislation. All of which has raised an obvious question for corporate leaders: how does salary transparency affect employee productivity and motivation? 

​The new study surveyed more than 2,000 employees over three months. Employees who discovered their peers made more than expected worked 9.4% fewer hours. But when they learned their manager earned 10% above their best estimate, they worked 1.5% more hours.

Experts say—and the study found—that it can demoralize an employee to find out that a colleague with the same job functions and similar background is paid more. On the other hand, if that colleague makes less, many workers will feel comfortable in their current positions, with less incentive to go the extra mile. But if they’re made aware of how much more highly paid their senior managers are, “they see an opportunity and are motivated to work to get to that level,” says Bloom. 

While salary is significant, it isn’t the sole motivation for employees to work harder, experts say. “It’s not the full picture of what you are getting, career-wise or total compensation-wise,” says Andy DeMarco, a vice president and leader for human resources in Korn Ferry’s Americas region. When workers assess the desirability of a managerial position, they also take into account aspects of it like leadership, responsibilities, or growth. Leaders need to look at high-potential candidates who are on the promotion path and give them a realistic view of the job. Periodically, you can also evaluate and increase their pay to bring it closer to market rate and to sustain their enthusiasm, says DeMarco.