That’s the case that Daniel Indiviglio made in The Atlantic last year:

If you look to industries where compensation is common knowledge, then you find employees that have far better success achieving more pay. One clear example is Wall Street. At investment banks, salary transparency isn’t encouraged, but bankers and traders just can’t help themselves. After all, many are obsessed with money. So come bonus season, they compare packages and relay information from firm to firm. Industry publications even include league tables to show which banks pay better than others.

Salary transparency is also quite strong among chief executives across the economy. Public companies are required to report this information. Is it any coincidence that executive pay has been rising over the past few decades? Each CEO wants to be paid above average, so pay ticks up.

This brings to mind some causality problems. People that get a lot of scrutiny, such as chief executives and athletes and such, where people are most likely to know the salaries to begin with. This creates not just higher wages, but distortions (at least in the case of CEO’s). Where people are a brand name, and they’re not just paying for actual performance, but for the brand. In the case of Wall Street, people are most likely to talk about how much they make precisely because they’re doing well. At least, I think that’s more likely than the notion that they’re doing well because they talk about how much they make.

I don’t know how I feel about the proposal overall. A few jobs back, at Falstaff where I was working when I started Hit Coffee, we talked regularly about how much we were making. It did not, actually, result in higher wages. It did result in a fair amount of resentment. My resentment, to be precise. There was a guy named Edgar (some of you may remember him) who was… not bright. He was perpetually one of the worst two employees in our department. We started the same week. But Edgar made more than I did. Five cents an hour more. And it drove me crazy. Five cents an hour became an actual point of resentment. Pay within the department was relatively uniform, but for the five cent raise he asked for at just the right time to get it (he didn’t ask for such a paltry raise, but that was all they were willing to give him. But after that, they refused to give anything to anybody). Due to circumstance, I’ve historically been overqualified and underpaid, and that never bothered me like the Edgar thing. We were at the same place, doing the same job (indeed, when I got a promotion without a raise, I was above him and making less).

Even though we weren’t supposed to talk about it, we always did and management actually used this to their advantage. No one could say that Jack didn’t deserve a raise, but they couldn’t give one to him without also giving one to Joe. Yes, Jack deserved it and Joe did not deserve it, but such things are bad for morale. With some exception, I would actually expect pay transparency used in this way more than any other. Not preventing disparities between different jobs, but completely flattening them within departments and job descriptions. This could be good for things like wage equality across genders and such, but from a productivity perspective is problematic. Because it will, the vast majority of the time, breed resentment the more than people know that other people are making more at them at the same job. That some people are more valued than others.

And yet… I am a critic of the status quo of treating unequal employees equally. I have noticed, in my professional life, that over and over again that not nearly enough care is taken to avoid losing the best employees (we can’t give Jack a raise) and too much effort is made to accommodate the worthless employees (We can’t fire Joe, he has a family to support). This isn’t hard policy, exactly, but the way that things often work. At Falstaff, for example, there was the assumption that nobody was going to be able to find a better job, so they should be kissing the feet of Falstaff for giving them one that paid them a solid $10/hr. And yet, at the same time, until the budget absolutely forced them to, nobody wanted to fire Edgar, who had a wife and four kids to support and was an all-around decent guy. So the end result is that, contrary to their belief that nobody can find other work, they lost the ones that were talented and skilled enough to actually find other work, while the Edgars stuck around. My criticism of this is at odds with my apprehension about wage transparency.

Category: Market

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