You’ve probably taken a guess as to how much money your coworkers and others make, compared with you. Evidence suggests you probably aren’t very accurate. In one PayScale survey of 71,000 people, for example, 64% of those paid the average market rate thought they were paid less than average. At the same time, 35% who were paid above market rates also thought they were paid less than average.
10 Years of Data on Baseball Teams Shows When Pay Transparency Backfires
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Because our perceptions about pay are often wrong, pay transparency within organizations has started to gain popularity. But there are pros and cons to this approach: On one hand, transparency can guard against discriminating while giving people a firm grasp of where they stand. On the other, when people are made aware of pay dispersion, it can lead to feelings of inequity that affect satisfaction and motivation. Research using data from Major League Baseball teams shows that transparent pay can, in fact, lead to higher team performance — but only when individual performance is justified by pay as well. The lesson for companies is that, rather than hiding pay information or making it accessible without context, they would be better off forming transparent performance metrics, matching pay to those metrics, and having open conversations with employees about where they stack up.