Why are salaries secret

And during initial hiring or annual raise or promotion discussions, that information asymmetry gives an employer the advantage—and they can use that advantage to save a lot of money. Imagine how much better you could negotiate for a raise with all that information. But economists also warn that information asymmetry can cause markets to go crazy—someone leaves a pay stub on the copier and suddenly everyone is shouting at each other about inequality.

It can even lead to a total market failure. In a survey of over 70, employees , an astonishing two-thirds of people who were paid at the market rate believed they were actually underpaid. And the majority of those who felt they were underpaid intended to quit, even if they were paid at market rate.

In addition, keeping salaries secret makes it easier to discriminate—or at least makes it easier to ignore the discrimination present today. Organizations with pay transparency see dramatic reductions in discrimination and increases in the perception of fairness. While the world is slowly moving towards full pay transparency, Asia is still lagging with its restrictive views on compensation.

Often, Asian companies impose strict rules prohibiting employees from discussing their salaries in the workplace. If you do not comply, you risk getting invited to a disciplinary meeting.

Despite the lack of transparency, few people question pay secrecy. In fact, in most countries discussing your salary at work is still considered inappropriate. However, our sociocultural norms are not the only reason your company discourages pay discussions. You have probably heard about Information Asymmetry — a phenomenon where one party of an economic transaction has more information than the other party.

That means that by not disclosing compensation programs the employer may take advantage of the employees. If the employee does not know how much the rest of the team earns, the company can get away with the minimum wage. Some responses to transparency may include boycotts, endless arguments, and even departures. To avoid ugly situations, most employers decide not to share such sensitive information. However, this choice can backfire. The situation took an unexpected turn.

Some people are natural-born negotiators while others settle down for the first offer they get. Penner says companies could benefit by getting ahead of the narrative since public pressure will only continue to mount.

Websites like GlassDoor and PayScale allow employees to share salaries anonymously and determine the market rate for their job.

Companies may be reluctant to make their pay transparent, because that can render it more difficult to hire talented staffers at lower rates, Belogovsky says.

That means that companies will be able to hire fewer people on tight budgets. Before Buffer began publicizing its internal pay data, company leaders feared it might be easier for competitors to poach employees, Griffis says. While some have argued pay transparency can increase employee performance, others say full transparency can have a detrimental effect on employees.

Zenger says it could cause tension. This is where salary transparency makes its most convincing case for business leaders. If an employee finds out a colleague gets paid more than them for the same work, the best case scenario is that their productivity will plummet. In the long term, happy employees not cheap employees make better business sense, and as the business environment moves further away from traditional models that keep employees in a box, the old paradigms and internal conflicts disappear with them.

Once salaries are revealed then any false assumptions or bad feelings can be easily dispelled - on the flip side, any discrepancy between wages must be explained explicitly.

Peer camaraderie is a strong constant in any company if not, then you have a serious morale problem , and using this to ensure that salaries are fair and balanced is an effective and self-managing system - if one that is difficult to enact.

Salary transparency has been around for a while now in different guises, and when researching our own way of opening up I found a number of companies like Buffer and Hanno who use a formula to calculate wages. After much debate with my colleagues which you can read more about here , we realized that a salary formula - while it may seem to be objectively fair - is still too prescriptive in a global business environment. Another recent example of salary transparency is Smarkets , a betting firm based in London whose employees vote on all salary changes.