Published in the San Diego Union-Tribune, October 17, 2022
by Neil Senturia
Do you know how much money the person next to you is being paid? Do you want to know? Are you sure you want to know? Management gurus tell us that CEOs need to be transparent. Fine and dandy, but by the way, what are you being paid to tell us that?
California recently passed a bill requiring companies to post salary ranges for a position. Gov. Newsom signed it in late September, and the new requirements are set to become effective on Jan. 1, 2023.
This does seem a good idea in an effort to close the gender pay gap and promote equity and diversity, but when I see the chucklehead across the hall being paid $30,000 more than me, and frankly doing a less effective job, well, I’m just saying.
There is a teachable moment here, and Ben Cohen, a columnist for the Wall Street Journal, writes that ice hockey can explain it all.
In 1990, a Montreal newspaper published the salary of every National Hockey League player. No surprise, what we learned is that “wage disclosure affects the performance of those employees and their entire teams,” the article says.
Now comes along James Flynn, an economics Ph.D. candidate at the University of Colorado, who diced and sliced the data and came up with a fascinating reveal. “The hockey players who discovered they were being paid less didn’t suddenly put in less effort at work. Rather, they exerted a different kind of work.”
Defensemen, who were paid less, began to focus on offense because the forwards who did all the scoring got paid more. Their stats improved. “These players couldn’t resist the incentives to produce whatever the boss is measuring and rewarding,” he writes. But the performance of their teams suffered when they altered their individual play. More personal goals, fewer team victories.
Flynn goes on and says, “It is a deeply human impulse to want to be paid well, but what we really want is to be paid well — relative to the other players or employees.” Sports are unique because everybody in America knows what Tom Brady and Steph Curry are being paid.
The truth is we care less about what we make than what we make in the context of our peers. In one study, when an employee learns that the other guy is making more, “they report lower job satisfaction and a higher likelihood of seeking work elsewhere.” Flynn says sports teams are ultimately hurt by underpaying some players. In the end, what people really want is to be valued properly.
Now, let’s look at “pay inequity” — what we call the gender gap, and let’s also look at “pay inequality” — that is the one where the goof-off in marketing is making more than me. Then let’s mix in women and minorities.
Here is some good news. The studies seem to indicate that pay transparency makes it more difficult for employers to pay their staff unfairly. In other words, knowing who is getting what tends to level the playing field.
As usual, unintended consequences abound. How does the employer link “pay and performance?” How do I reward and incentivize the right outcomes? With sports figures, it is easier, the stats are relentless. But in companies, the correlation between work effort and accomplishments is squishier.
It is the Gen Z workers who want to share everything from what toothpaste they use to their current salary. Pay transparency is designed to bring about pay equity. It reduces bias. Glassdoor did a survey that found 63 percent of employees prefer to work at a company that discloses pay information.
But Payscale found that 57 percent of people who were being paid at the market rate believed they are being underpaid. So, whatever I am being paid is less than what I think I am worth? No surprise there.
Pay transparency can have positive impacts on trust, fairness and job satisfaction, as well as increasing individual task performance. But there is that danger that once you open this Pandora’s box and overpay one person, the demands to create equity and bring everyone else up is more than a slippery slope — it is a cliff. If an employee really thinks he can get paid more elsewhere, well, sometimes, you just have to pack him a lunch and show him the door.
Go back to hockey. Someone has to play defense so that the entire team can win the Stanley Cup.
Rule No. 734:
She shoots, she scores.