Wage Yearners

How pay transparency affects worker productivity

Three people atop increasingly taller stacks of coins. The first person is casually dressed and sitting, the second is in a shirt and tie and looking at the thrid person, who's in a business suit carrying a briefcase. Illustration: Good Studio/stock.adobe.com.

What if you knew how much your boss makes? New research shows that increasing pay transparency can have surprising impacts on worker productivity.

The study, co-authored by Associate Professor Ricardo Perez-Truglia, asked over 2,000 employees at a large commercial bank in Southeast Asia to guess their peers’ and managers’ salaries, then monitored their work habits after they were given the salary information.

Employees became less productive when they discovered their peers were making more money than they thought, but they worked harder when they discovered their bosses were earning more than they estimated—even up to 20 times more than their own salary.

“When you compare yourself to your peers, small pay differences demotivate you,” says Perez-Truglia. “But when you find out your bosses make an obscene amount more than you make, you don’t care. If anything, you become more productive.”

The productivity boost was strongest for manager positions just a few promotions away from an employee’s current job, but the effect faded when it came to unattainable positions. This suggests workers believe that if they work hard and get promoted, they will get paid an obscene amount themselves, says Perez-Truglia.