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How salary benchmarking by employers affects workers’ pay

Young Asian business woman in blue suit receiving an envelope with a salary offer
Credit: iStock

A wave of pay transparency laws aimed at reducing inequities is giving millions of workers access for the first time to information on what co-workers make and what potential employers will offer.

Yet comparing salary information is nothing new for employers. While U.S. antitrust law prohibits employers from directly sharing salary information with each other, most mid-sized and large companies routinely use aggregated data from third parties to get a read on the going rates. 

The effects of this widespread practice, known as salary benchmarking, have never been systematically studied—until now. Following White House concerns that benchmarking may be used to suppress wages and benefits, a new study offers the first evidence on its impact on workers.

The conclusion: Benchmarking does not have a negative effect on pay for the average employee. While some salaries decrease and others increase after a company uses a benchmarking tool, salaries overall simply move closer to the benchmark. 

If there was a negative effect on salaries, it would be suggestive of anti-competitive effects,” said Associate Professor Ricardo Perez-Truglia, who authored the new National Bureau of Economic Research working paper with Zoe B. Cullen and Shengwu Li of Harvard University. “That’s not what we found. If anything, we see some small salary gains for low-skill occupations.”

The researchers used aggregated data from the nation’s largest payroll processing firm to see how much employers paid new hires in hundreds of job categories before and after they used the payroll firm’s salary benchmarking tool. They found that employers paid new hires much closer to the median wage after searching the market rates for those job titles.

As a result, some new employees earned more and some earned less than they would have otherwise. “For the most part, they sort of cancel each other out,” said Perez-Truglia.

Direct sharing prohibited by law

Although U.S. law prohibits employers from directly sharing information about their employees’ compensation with each other, they can access aggregated salary data from third parties such as management consultants and payroll processors. As part of the study, the authors surveyed human resource professionals who set pay at medium and large companies and found that 87.6% use salary benchmarks, usually from multiple sources.

In July 2021, Biden issued an executive order encouraging the attorney general and Federal Trade Commission to consider revising federal guidance that lets neutral third parties share compensation information with employers—but not employees—without triggering antitrust scrutiny. “This may be used to collaborate to suppress wages and benefits,” the White House said in a fact sheet.

At that time, there was no research on the impact of benchmarking. Perez-Truglia said regulators may be responding to studies and news reports suggesting that industry consolidation is giving employers too much market power when it comes to setting salaries. 

The new study, which began in 2019, looked at starting pay offered to new hires at 586 firms that gained access to the benchmarking tool between January 2017 and March 2020. The online tool is easily searchable by job title and is based on real, aggregated and anonymized payroll records of many millions of employees.

The researchers divided the new hires into two groups: nearly 5,300 new hires where the company had searched the benchmarking tool before hiring, and a “control group” of 40,000 hires in the same companies that had not been searched. They compared pay for the two groups in the five quarters before and five quarters after the company first gained access to the salary data.

As a second control group, they looked at salaries offered to about 157,000 people hired during the same time periods in comparable roles at similar companies that never gained access to the more precise salary tool.

‘Compression toward the benchmark’

They found that on average, both high and low salaries moved closer to the benchmark. Among “searched” positions, the absolute difference between the new hire’s starting salary and the median salary for that position dropped from about 20 percentage points before the firm gained access to the tool to about 15 percentage points after. This drop is “large in magnitude, corresponding to a 25% decline,” the authors wrote. 

To illustrate this “compression toward the benchmark,” suppose the median pay for a bank teller is $40,000. Without that information, one bank might pay $30,000 and another $50,000. “Once they see the benchmark information, they are much more likely to pay new hires around the $40,000 benchmark,” Perez-Truglia said.

The researchers added that “the effects on salary compression coincide precisely with the timing of access to the benchmark: The compression was stable in the quarters before the firm gained access to the tool, dropped sharply in the quarter after the firm gained access, and remained stable at the lower level afterwards.”

For searched positions, compression around the median wage was much stronger among low-skill positions, which generally don’t require more than a high school degree, than high-skill ones. Dispersion around the benchmark dropped by 40% for low-skill jobs versus 14.6% for high-skill ones. 

“This finding is largely consistent with the anecdotal accounts in interviews with compensation managers, according to which low-skill positions are treated as commodities and thus should be paid the market rate,” the authors wrote.

They did a similar analysis looking at average salary levels and found that benchmarking “does not have a negative effect on the average salary. If anything, the effect on the average salary is positive, but small in magnitude and statistically insignificant.”

Specifically, they found the average starting salary for all searched positions was either 0.2% lower or 1.7% higher than the two control groups, respectively.

There were some statistically significant gains for low-skilled employees: Their average pay increased by 5% or 6.7% depending on the control group. The study also found that the small boost in salary for low-skilled employees increased their retention. More precisely, there was an increase of 6.7 percentage points in the probability that those employees were still working at the company one year later. 

“This evidence suggests that firms may be using salary benchmarking to raise some salaries in an effort to improve, among other things, the retention of their employees,” the paper says.

For high-skill positions, starting pay went down by 2.9% or 1.6% depending on the control group, “but those effects must be taken with a grain of salt, because they are statistically insignificant,”  Perez-Truglia said.  

“Typically low-skilled employees are less likely to negotiate than high-skilled employees. They are often made take-it-or-leave-it offers,”  Perez-Truglia said.  Benchmarking could provide “more equality for those workers.”

There is also a growing body of literature on pay transparency, but much of it focuses on giving employees more access to information, usually as a way to reduce gender and racial pay gaps. A new law in California requires all private employers with 15 or more employees to provide pay ranges in all job postings starting Jan. 1. Colorado, Washington, and New York City have passed similar laws.Although employees can’t access the same kind of “super-sophisticated” pay data that employers can use, Perez-Truglia said, they can use online sources such as Glassdoor, LinkedIn, and to get a read on competitive salaries. Companies are also consulting these sites, he added, which generally rely on employees reporting their pay at current or past employers

Dean’s Speaker Series: Reddit COO Jen Wong on her leadership journey

Growing up as a shy introvert, Reddit COO Jen Wong said she never saw herself as a leader.

“I think I assumed a leader was a person who told other people what to do,” Wong said.

It was her fascination with companies and the people who lead them, as well as a drive to solve new problems, that led her to pursue a career that has included leadership positions at Time, Inc.; PopSugar; AOL, and now Reddit.

“I’m a puzzler at heart, and when my mind starts searching for a new problem to solve, and there’s something I can learn, that propels me forward,” Wong said. “I always want to move into something that has a clear lane for me to have an impact.”

Wong, who topped Reddit’s Queer 50 list this year, shared her leadership journey with MBA students and the Haas community at a Dean’s Speaker Series talk on Sept. 21. The talk was co-sponsored by Q@Haas as part of Coming Out Week, September 18-22.

As Reddit’s Chief Operation Officer, Wong oversees business strategy and related teams.  Only four years into her tenure as COO, she has helped lead the growth of Reddit into a profitable business by scaling ad revenue to well over $100 million.  Her leadership goes beyond growing the business; she is also passionate about Reddit’s company goal that’s just as important as revenue: diversity and inclusion. In addition, Jen is viewed as an expert in the digital landscape.

Watch the full talk:

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Tour de Force

Alvaro Silberstein, MBA 17, helps those with disabilities navigate the world.

Back when Alvaro Silberstein was a teenager who surfed, snowboarded, and played on Chile’s under-19 national rugby team, he sometimes imagined a scenario in which he might need a wheelchair. “I was involved in sports where those kinds of injuries happened,” says Silberstein, “so I did consider the possibility. I loved being outside in nature, and I always told myself that if I faced the kind of mobility challenges that meant I couldn’t go on big outdoor recreational adventures, I would prefer to die.”

Then the worst actually happened. When he was 18, Silberstein was struck by a drunk driver and left fully paralyzed from the chest down and partially paralyzed in his arms and hands. Since that day, he hasn’t just continued to undertake physically arduous adventures in remote locations around the world, he’s also co-founded a company, Wheel the World, that makes it possible for travelers with disabilities and their families to follow in his wheelchair tracks—and forge their own new trails. “We’re trying to change perceptions around disabilities and push the boundaries of what’s possible,” says Silberstein.

The idea for the company was born from an ambitious trek in Patagonia that Silberstein took in 2016, while still a student at Haas. His dream had always been to visit the rugged Torres del Paine National Park in Chile and traverse its iconic five-day W Trek.

“My friends and family in Chile had been there, but I assumed it was impossible for me,” says Silberstein. “But after my experience in California, where I was amazed that I could visit places like Yosemite, Big Sur, and the redwoods, I said, ‘OK, let’s figure it out.’”

Dream trip

Together with his childhood friend and Wheel the World co-founder, Camilo Navarro Bustos, Silberstein began organizing a trip and fundraising to purchase a specially adapted wheelchair built to handle rough terrain with the help of a team. That’s when the two men realized they had a unique opportunity: they could make the chair permanently available in Patagonia to other adventurers with physical limitations. “We had the chance to not only impact my life and fulfill my dream to visit Patagonia,” Silberstein says, “but to open this path to others.”

In April 2016, together with a film crew and a team of twelve—including experienced mountaineers, disabilities experts, and a physical therapist specializing in spinal cord injuries—who pushed and pulled the chair along the arduous 50-mile route, Silberstein completed the W circuit, arriving at the Mirador Base de las Torres as a national hero in Chile.

Before Silberstein even made it back to the airport, there was already an inquiry about using the adapted wheelchair for a 14-year-old boy who had refractory epilepsy and who was later able to complete the trek as well. “The real aha moment was when other disabled people reached out to say, ‘I want to do that same trip,’” says Silberstein. “That really validated our decision to start Wheel the World.”

Man operating a handcycle with three children riding along.
Silberstein in Peru.
Four scuba divers underwater.
Wheel the World scuba-diving trip in the Riviera Maya in Mexico.

Expanded purpose

Today, Wheel The World has 28 employees from 10 different countries, working across the globe from Berkeley, California, to Santiago, Chile, to Lyon, France, and beyond. Initially the focus was on guided adventure travel like Silberstein’s Torres del Paine trip, but demand from travelers with disabilities for destinations closer to home caused the company to expand its remit. “Wheel the World is the Expedia of accessible travel,” says Silberstein. “You can book a hotel in New York City, but you can also book a five-day trip to Easter Island.” Travelers book through, and the company generates revenue like any other online travel agency.

A line of people trekking through Easter Island on foot and in wheelchairs.
Wheel the world trek through Rapa Nui (the indigenous name of Easter Island) National Park.

One reason travelers with disabilities appreciate WTW is the granular detail the company provides on accommodations—not just whether a hotel or an experience is standards-compliant. “In the U.S.,” explains Silberstein, “standard ADA-compliant bed height is something like 80 centimeters, because many in the U.S. use power wheelchairs that are relatively tall. In Spain, however, a standards-compliant bed is only 40 centimeters high, because the majority of users there are in lower, manual chairs.”

That’s why WTW listings include exact measurements for bed heights and bathroom door widths, availability of ramps and elevators, hearing disability guidance, and more. The listings are developed with the help of volunteer “mappers” who take measurements and photos of hotel rooms and facilities. The detail enables travelers with disbilities and their companions to enjoy their vacations without the anxiety of unexpected access issues—in other words, to have a trip exactly like those that able-bodied travelers take for granted.

Silberstein says that hotel and tour operators are eager to work with WTW to learn how to make their properties and experiences more inviting for the disabled community. In part it’s because the market for accessible travel encompasses so much more than just the estimated 15% of the world’s population that has a disability—it also includes their travel companions as well as aging travelers who may need special accommodations. Half the customers booking travel via WTW are the able-bodied companions or family members of a traveler with a disability, Silberstein says. “We like to say that the disabled are the only minority that isn’t actually a minority.”

WTW offers a free online course around accessibility for travel professionals, enabling destinations and hotels to become a certified WTW partner. “We will achieve total inclusion when we make businesses realize that if they build customer experiences that are well-designed for people with disabilities, it’s a good opportunity for them, too,” says Silberstein.

Man in a specialized wheelchair made for trekking through rough terrain.
Silberstein during his momentous trek through Torres del Paine National Park in Chile.
Kayakers rowing next to a giant blue ice shelf in Chile.
Silberstein during his momentous trek through Torres del Paine National Park in Chile.

Sense of urgency

WTW’s pre-pandemic growth certainly reflected that market potential, with the company roaring from a record 2019 into January 2020 with a new round of funding and a long list of projects to undertake. Then came COVID, and its universal beatdown to the travel industry. “The pandemic was a disaster for the goals we had set,” says Silberstein. “So we focused on what was in our control: developing systems and technologies to accommodate our growth once the pandemic was over and building more partnerships with operators and hotel chains around the world.”

That pivot paid off. In 2021, despite continued challenges to the travel industry, WTW served five times the number of people it did in 2019. Silberstein plans to keep that momentum going. “In 2021, we impacted around 1,000 people; we want to make that 5,000 travelers by end of 2022,” he says. To do that, WTW plans to expand to 45 employees and to increase the number of “products” (i.e., WTW-accredited hotels or tours) from 600 to 9,000 within the next two years. The company recently closed a $5 million Series A funding round, including backing from the former team, which should help make those ambitious growth targets possible.

Five people on a beach, two in wheelchairs and one with a prosthetic leg.
Silberstein (left) on a beach excursion in Costa Rica.

The very success of WTW contributes to Silberstein’s sense of urgency. “We recently heard from someone whose boyfriend had both legs amputated six months earlier and who was finally feeling ready to look at travel experiences again,” he says. “She went on our platform to research accessible destinations in Denver, which we don’t cover yet. But she thanked us for leading the way, because it had been difficult to find useful resources for planning.”

Like so many stymied travelers during the past two years, Silberstein has been making plans for his own post-pandemic excursions. “I have been so focused on work for the past two years, but I really want to do a trip to Machu Picchu and the Amazon with an operator we have in Peru,” says Silberstein. “We also have an experience in Lake Titicaca in Peru, where you row in Polynesian kayaks to different small towns around the lake. I had planned to do that with my three older brothers in 2020, and we had to postpone. But now we are looking forward to completing it in 2022.”

Thinking back to the young man who believed death would be preferable to life in a wheelchair, Silberstein is philosophical. “If I could go back to my younger self,” says Silberstein, “I would tell him this: Your life will look very different from what you expect—and maybe that feels like bad news to you. But even if it takes time, you’ll be able to overcome every challenge that you’ll face.”

Voting Blocks

Limiting minority voting power

A car with a sign reading "Protect Our Vote!" waits in line at a voting rights demonstration.

Since the Supreme Court struck down a key provision of the Voting Rights Act in 2013, minority voter underrepresentation has intensified—especially in places where Black, Asian, and Latino voters are on the brink of being electoral majorities, a new Berkeley Haas study has found.

The researchers found that minority voter registration and representation dropped by up to 6.3 percentage points in cities that had new freedom to change voting rules following the Shelby County v. Holder decision, which effectively lifted “preclearance” rules requiring federal approval for election changes in states and counties with a history of voter discrimination.

Underrepresentation was highest in cities where minorities account for a pivotal 55% to 60% of the voting-age population. Minority voter underregistration rates were highest at a similar spot—when levels of minority population shares were between 45% and 50%.

This pattern suggests organized and concerted efforts to limit minorities’ voting power, says co-author Professor Francesco Trebbi.

“This tells you that there is something going on here that is not just explained by minorities voting or participating less,” Trebbi says. “Something is deeply skewed in terms of the electoral playing field here, and it’s surgical.”

The findings are compelling evidence that voter disenfranchisement is not a relic of American history, but is now on the rise.