Salary Secrecy

Aug 23, 2012 • 208 Views

What happens when everyone knows how much you earn?

A Boulder, Colorado firm, has voluntarily decided to let workers check a spreadsheet and see what others take home. One employee said she likes it, even when she discovers someone earns more. “I am also grateful to know there’s no back-door deals…” By contrast, paycheck transparency can be tough to handle when someone feels an associate should not earn more. As another employee said, “I have a colleague who’s making a little less than me who comes to me and says ‘I don’t think you deserve to make more than I am making…'”

Through required CEO employee ratio disclosure, the Dodd-Frank Wall Street Reform and Consumer Protection Act takes a step beyond voluntarily sharing salary information to mandatory disclosure. With Dodd-Frank, the SEC is charged with writing rules to insure a pay comparison between CEO compensation and median employee salary. The goal? Transparency could create social pressure to narrow huge gaps between CEO and employee pay.

Thinking of the impact of knowing your “neighbor’s” salary, we can ponder economist Richard Easterlin’s happiness research. Easterlin says that as wealth accumulates, it bestows increasingly less extra satisfaction. Believing that pleasure from wealth is relative, he concludes that as long as you have more than your neighbor, you feel good.  Consequently, rich or poor, people just need to have more than someone else to feel good. Here, 2 economists challenge Dr. Easterlin’s conclusions.

Sources: Thanks to Marketplace.org’s “Payday” series. Discussing pay disclosure, their programs here and here were fascinating. To check the current status of the executive employee salary ratio rule, this SEC website has the information. You might also want to look at California’s mandatory pay disclosure rule for public employees. California state workers protested when the Sacramento Bee published salary information from public records.

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