Exposing Pay Secrecy

Abstract

Pay secrecy is a contentious issue in many organizations and a controversial one in our society. However, there has been little scholarly research on this topic. We hope to address this void by exposing the complexity of pay secrecy as a construct. What are its costs and benefits? What factors affect the link between pay secrecy and the extent to which it is a cost or benefit? This article reveals the complexity of pay secrecy and, we hope, generates ideas for much new research in the broad management field. Pay secrecy in organizations is a contentious issue and has been for a long time. Take, for example, the following memoranda that were exchanged in October of 1919: POLICY MEMORANDUM (October 14, 1919) Forbidding Discussion among Employees of Salary Received It has been the policy of the organization to base salaries on the value of services rendered. We have, therefore, a long established rule that the salary question is a confidential matter between the organization and the individual. It is obviously important that employees live up to this rule in order to avoid invidious comparison and dissatisfaction. Recently several cases have come to the notice of management where employees have discussed the salary question among themselves. This memorandum should serve as a warning that anyone who breaks this rule in the future will be instantly discharged.

Pay communication: Where do we go from here?

“…Lawler (1981) first indicated that pay communication "ranges from almost total secrecy … through complete openness …" (p. 6); however, it was Burroughs (1982) who demonstrated how organizations may differ in regards to their pay secrecy level by illustrating different pay communication categories (e.g., red, green, yellow, and orange organizations). Building on Burroughs' (1982) research, it has been suggested (and widely accepted) that pay communication approaches occur along a continuum with one extreme representing complete pay secrecy and the other representing complete pay openness, with a variety of pay secrecy and pay openness strategies residing on the continuum between the two extremes (Colella et al, 2007;Lawler & Jenkins, 1992).…”

“…Pay secrecy, or wage secrecy (Danziger & Katz, 1997;Gan, 2002;King, 2003), is a pay communication practice that (at its most extreme level) prohibits the distribution of any pay information by the employing organization (high organizational restriction: Bamburger & Belogolovsky, 2010;Colella et al, 2007;deCarufel, 1986), and forbids employees from discussing their pay information with other organizational members and outsiders (high employee restriction). This type of employee restriction generally involves the adoption of a pay secrecy policy (Bamberger & Belogolovsky, 2010;Burroughs, 1982;Colella et al, 2007;Thompson & Pronsky, 1975), also referred to as pay confidentiality rules (Bierman & Gely, 2004;Gely & Bierman, 2003). In order to promote compliance with a pay secrecy policy, some organizations require employees to sign a pledge stating they will not discuss their pay information with other organizational members, while others take it a step further and enforce this restriction by having disciplinary consequences (such as termination) for those employees who violate the policy (Gomez-Mejia & Balkin, 1992).…”

“…Organizational restriction refers to the amount of pay information the employing organization distributes to employees and possibly outsiders on a regular basis (e.g. at specific time intervals, such as yearly) or upon request (e.g., Bamberger & Belogolovsky, 2010;Colella et al, 2007;deCarufel, 1986). Employee restriction refers to the extent to which employees are permitted to discuss their pay information among each other and possibly outsiders, which is usually represented by a formal or informal pay secrecy policy (e.g., Bamberger & Belogolovsky, 2010;Bierman & Gely, 2004;Burroughs, 1982;Colella et al, 2007;Gely & Bierman, 2003;Thompson & Pronsky, 1975).…”

“…However, pay communication practices (pay secrecy and pay openness) are nowadays viewed as existing along a continuum (Burroughs, 1982;Colella et al, 2007;Lawler & Jenkins, 1992;Patten, 1978) as organizations vary on their usage of pay secrecy policies and the amount of pay information they present to employees (Gomez-Mejia & Balkin, 1992;Milkovich & Newman, 2005). Lawler (1981) first indicated that pay communication "ranges from almost total secrecy … through complete openness …" (p. 6); however, it was Burroughs (1982) who demonstrated how organizations may differ in regards to their pay secrecy level by illustrating different pay communication categories (e.g., red, green, yellow, and orange organizations).…”

The Impact of Social Class in the Hiring Process

“…While many organizations remain secretive about communicating employee salary information (Colella, Paetzold, Zardkoohi, & Wesson, 2007), applicants are frequently asked to disclose their salary history or salary requirements when applying for available positions. In fact, according to a survey of HR professionals, neglecting to provide salary history or salary requirements on a resume when asked to do so is considered a mistake (SHRM, 2005).…”