#EconomicPolicy
#EconomicPolicy75
Pay Transparency
Experimental evidence of the effects on employees’ performance, provision of extra effort and actions to correct pay disparities
When women are informed about their relative wages with respect to colleagues, they react more strongly to differences relative to other women than to differences with men. That is one of the findings of new research by Marianna Baggio and Ginevra Marandola, which uses an online experiment to assess the impact of pay transparency measures that reveal inequalities in wages on the behaviour of employees.
The aim of transparency measures is to make pay systems less opaque and reduce the gender pay gap. But as the study shows, they can also crowd out intrinsic motivation, as staff become less likely to provide extra effort beyond what is required to receive their pay. On the other hand, in a transparent work environment with high trust in the employer, there may not be a decrease in workforce motivation if differences in wages are perceived as fairly mirroring employee characteristics relevant to their pay.
The researchers also find that pay transparency is successful in increasing the total number of grounded requests for compensation for unfair treatment, while reducing the number of unjustified ones. Women choose more often than men to retaliate against employers’ unfair wage allocation by reducing their extra effort, while they choose less often than men to resort to a risky mechanism for boosting their compensation.
More…
The case for pay transparency, as a policy tool to reduce the gender pay gap, rests on the assumption that more transparency about wages reduces the information asymmetry between employers and employees, thus discouraging employers from discriminating and empowering employees to take action against unfair treatment.
This research focuses on the impact that pay transparency policies have on employees’ behaviour, while remaining agnostic about the effectiveness of these measures in changing employers’ choices.
The researchers show how by revealing existing pay differences, pay transparency policies affect employees’ intrinsic motivation, productivity and claims against unfair treatment. They bring a behavioural perspective to the debate, suggesting that more attention should be devoted to what transparency reveals, how this is revealed and in which context.
The research shows that when women are informed about their relative wage with respect to colleagues, they react more strongly to differences in wages relative to other women than to differences with men.
This may dilute the effectiveness of pay transparency in increasing women’s awareness and empowerment. Complementary information (possibly on performance) or a different way of presenting information on pay transparency may be used to correct potential biases that favour within gender comparisons.
By revealing unequal wages, pay transparency crowds out employees’ intrinsic motivation, as employees become less likely to provide extra effort beyond what is required to receive their wage. But in a transparent work environment with high trust in the employer – something that may be encouraged by pay transparency itself in time – a decrease in workforce motivation may not occur if differences in wages are perceived as fairly mirroring employee characteristics relevant to their pay.
Overall, pay transparency is successful in increasing the total number of grounded requests for compensation for unfair treatment, while reducing the number of unjustified ones. Women choose more often than men to retaliate against employers’ unfair wage allocation by reducing their extra effort, while they choose less often than men to resort to the risky compensation mechanism.
Pay transparency does not reduce this difference between genders. Together with the information provided by pay transparency, the right tool to react to discrimination must be made available for women, as costly and risky formal instruments might be very well dismissed in favour of other retaliation actions that are less eloquent, less risky and less costly.
Pay transparency measures constitute the first step of a three-step process, where information must be followed by awareness that can be brought about by complementary interventions aimed at strengthening women self-evaluation and self-esteem and at reducing support for the view that men are more productive in certain domains.
Then awareness must become action with the introduction of appropriate instruments that enable women to claim for fair treatment without incurring monetary and reputational costs.
‘Employees’ reaction to gender pay transparency: an online experiment’
Authors:
Marianna Baggio (European Commission, Joint Research Centre (JRC))
Ginevra Marandola (European Commission, Joint Research Centre (JRC))
