Shush … Can (and Should) Employees’ Salaries Be Kept Secret?

Today, in an excerpt from Maine Employment Law Letter, Attorney Connor Beatty of Brann & Isaacson, LLP, discusses the real-life pros and cons of making employees’ salary information public knowledge.

Picture this: A manager calls his subordinates into a conference room and asks them to write down their salary and pin it to a board for everyone to see. Just the idea of this is cringe worthy … and compelling. It was, in fact, the premise of the 2012 British reality television show “Show Me Your Money.”

The Argument for Pay Transparency

Publicizing your employees’ salary information may seem like asking for trouble. However, that is already the status quo for public workplaces. Recently, some private employers have begun following the government’s lead.

The primary argument in favor of publicizing salary information is that increased transparency will boost employee morale. Employees will feel valued if they know they aren’t being shortchanged, and transparency can lead to honest, productive discussions between employees and their bosses about the value they bring to the company.

By contrast, if information about an employee’s salary “gets out” (imagine a pay stub accidentally left in the break room), other employees may think the employer has been cheating them if their coworker receives a higher salary. Additionally, publicizing pay information shows that you have nothing to hide. If you pay female or minority employees less than other workers, for example, this would be readily apparent.

Additionally, President Barack Obama signed an Executive Order last year prohibiting federal contractors from retaliating against employees who discuss their salary. If the Paycheck Fairness Act (PFA) ever passes, it will extend that protection to all employees.

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Reality (TV) Check

Before you call everyone into the conference room with pay stubs in hand to implement a pay transparency policy, realize that there are several drawbacks.

First, publicizing salary information significantly reduces the information asymmetry and leverage employers currently enjoy when negotiating salaries. No employee will conclude that he or she is being paid too much, but many workers will assert that they are being paid too little.

Also, pay disparities among employees with similar job responsibilities could lead to jealousy, which can make a work environment toxic. Thus, even if pay transparency has merit for companies that are starting from scratch, the transition to salary transparency would likely be costly and disruptive for existing companies.

Can You Prevent Employees from Sharing Pay Information?

So, let’s say you decide not to publicize employees’ pay info—can you prevent them from doing so?

You should be careful about preventing employees from discussing their salaries with one another. The PFA would make it illegal for employers to discriminate against employees who discuss their salary with coworkers. (And, as mentioned above, Obama has signed an Executive Order that currently imposes the same restrictions on federal contractors.)

However, even without passage of the PFA, so-called gag orders on employee salary discussions may be illegal. The National Labor Relations Act (NLRA) prohibits employers from discouraging employees from engaging in concerted activity, including discussing pay with one another.

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Takeaways

There are pros and cons to salary transparency. As a baseline, make sure your pay practices do not violate the NLRA. Beyond that, the decision to adopt a pay transparency policy may depend on your industry and company atmosphere. Pay transparency policies may work best at start-up companies, where everyone is starting out on the same page.

However, there is a reason pay transparency was the premise of a reality TV show: There’s a good chance that sharing employees’ salary information will lead to drama.

In tomorrow’s Advisor, we examine why you may be fielding more requests for raises lately (regardless of whether you have a pay transparency policy), plus an introduction to the all-things-compensation website, Compensation.BLR.com.