In an effort to closer the gender wage gap, the City of Boston has recommended open salaries, among other guidelines. But will that hurt local businesses?
While it’s not widely practiced, it’s a policy the City of Boston has recommended for local employers in a bid to eliminate the gender pay gap. The tactic was among 33 “interventions” listed in a report released late last year alongside the launch of a compact to address gender inequality in the city.
In Boston, the pay gap is actually smaller than the national average, with women earning 83 cents for every dollar earned by male residents. The national average is 77 cents, but the figure fluctuates across the states.
More than 50 companies, representing 120,000 employees, have signed on to the Boston Women’s Compact and pledged to assess their internal functions. It is not clear exactly how many companies have adhered to the salary transparency recommendation, according to Megan Costello, head of the City of Boston’s Women’s Commission.
Companies that do use open salaries may find increased productivity, according to research from Tel Aviv University. The university’s Prof. Peter Bamberger, who has been studying HR compensation strategies for more than a decade, looked at salary secrecy and found it had only negative effects.
“Secrecy has a negative effect on worker performance, but not for the obvious reasons,” he says. By compiling data from new and old studies, he found that a major reason transparent salaries are effective is that without them, employees think working harder isn’t worth the effort.
“Trust and fairness may be part of it,” he says, “but we found from our experiment that most of the effect is explained by a reduction in the perceived expectation of additional pay for better performance — for trying harder.”
According to his research, employees who are unaware of what their peers earn tend to underestimate how much successful performers earn, while overestimating how little poor performers earn.
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