Pay transparency as a concept probably first came to widespread attention after Ricardo Semler revealed it as one of the strategies he deployed to motivate employees at his company, Semco back in the 1990s.
The idea is that if you remove any doubt around what people earn, you remove something for people to feel jealous about and thus promote a more harmonious workplace.
It’s a theory that has been questioned by a recent study from researchers at Yale University. They suggest that when we’re ignorant of the wealth of those around us, we tend to cooperate much more frequently with them.
“In our experiments, making wealth visible was a very corrosive force; doing so reduced cooperation and widened economic inequality. It resulted in the rich exploiting the poor,” the authors say.
With pay differentials between those at the top and bottom of organizations a regular feature of news bulletins throughout the world, the researchers found that inequality wasn’t all that important.
“Our results suggest that, surprisingly, the visibility of others’ wealth may have more of a social impact than the actual inequality of wealth,” they say.
The danger of transparency
The researchers used an application called Breadboard to place nearly 1,500 participants into a number of virtual societies. Each society came with three distinct levels of economic inequality and were designed to reflect life in the United States.
Participants in each virtual society were required to play a number of cooperation based games, with the wealth of each participant manipulated as part of the game.
“Most previous experiments exploring cooperation have ignored inequality,” the authors explain. “But human societies are typically very unequal, today more than ever, and so understanding the impact of inequality is of great importance.”
As disparities in wealth became visible, the researchers witnessed a drop in behaviors such as cooperation, interconnection and ultimately, performance. These changes were not evident in networks where individual wealth remained hidden.
The authors suggest that this is largely because when we know what others earn, it triggers our competitive side, which then undermines our willingness to cooperate.
Maybe it will pay to think twice before making salary information more transparent.