Do you work for an organization that treats payroll information as a state secret? Do you know what your colleagues get paid? Can you tell others what you earn?
Well, now you can, following the adoption of the Albanian government’s “Secure Jobs, Better Payroll” reform package, which includes a ban on wage secrecy policies.
The ban is primarily aimed at reducing gender pay gaps – part of a larger set of reforms that make gender equality a key principle of the Fair Work Act.
But there is also reason to believe that it should benefit other disadvantaged workers in both individual and collective wage negotiations.
Secrecy and the gender pay gap
The gender pay gap in Australia is currently 22.8%. According to the federal secretary of employment and industrial relations, Tony Burke, wage secrecy clauses have long been used hide wage differences between men and women:
Banning them improves transparency and reduces the risk of gender pay discrimination by allowing women to compare their pay with that of their peers. Differences can be discussed with their manager without fear of punishment.
International evidence supports Burke’s claim. Studying indoors The United Kingdom, the United States, Canada and Denmark all report a reduction in the gender pay gap due to legislation promoting pay transparency.
American research shows that women’s wages in states that ban wage secrecy clauses are 4-12% higher (depending on how the data was analyzed) than in states that allow secrecy clauses.
In Canada, Salary secrecy law reduced the gender pay gap by 20-40% (again depending on how the data was analysed).
These findings are supported by studies of organizations that have dropped payroll secrecy policies. A Study from 2019 about 9,000 U.S. workers found that women’s annual wage growth was 0.4% lower than that of men with an undisclosed wage. This gap disappeared with more transparency.
It is possible that just ending non-disclosure clauses is enough to improve results, even without people disclosing how much they earn – that the prospect of sharing wage information is enough to focus an organization on ensuring fair and fair reward.
Confidentiality, on the other hand, means that managers can make decisions they don’t have to justify to employees. This increases the risk of unconscious bias, favoritism, discrimination and stereotyping that influence compensation decisions.
What about conflicts?
Not everyone wants to share their payroll data. Some people are not aware of how this will affect their image. Some are afraid it will happen affect working relationships.
It can be shocking for colleagues in a similar position to discover that they are paid less than you. It’s even more distressing to find out you’re being paid less than they are.
Employers believe that wage secrecy is necessary minimize conflicts between employees. This is based on the “jealousy hypothesis”, which says that employees reduce their work effort when they find out that they are paid less than a colleague.
But such claims are exaggerated. In fact, employees are more likely to see restrictions on sharing payroll information with suspicion and as something driven by management’s self-interest, not the interests of the employees.
This is borne out by research showing that wage secrecy drives employees to do so underestimate the salary of the supervisors (but overestimate the wages of colleagues).
Most employees earn more credit. The research shows them understand and accept pay differences that can be explained and justified on the basis of work contribution and performance.
where to now?
While the ban on non-disclosure clauses is primarily intended to reduce the gender pay gap, it can also produce positive pay outcomes for other disadvantaged workers.
It is a fundamental economic principle that information sharing contributes to more efficient markets. Lifting wage secrecy thus contributes to a more efficient labor market.
By negotiating freely with full information, employees can assess their employment opportunities and make more informed choices. Individuals’ decisions encourage organizations to ensure they have fair and equitable compensation systems.
This should lead to more justice for everyone.
- Michelle BrownProfessor of Human Resource Management, The University of Melbourne and Leanne GriffinPhD, The University of Melbourne