Can pay transparency help with staff retention?

Many organisation go all-out in their attempts to keep employee turnover to a minimum, and for good reason. High rates of staff churn can prove to be an unnecessary financial burden on any company, in addition to hampering the morale of those who stay on board.

There are numerous initiatives a company can take to hold onto their top talent, and new research from Tel Aviv University offers a perhaps unorthodox solution – remove 'pay secrecy' from the organisation and let everyone know what everyone else is earning.

Academics from the university, led by Professor Peter Bamberger, attempted to delve into the issue of whether knowing how much colleagues earn can have an effect on employees' morale, work performance and the likelihood of them staying on at an organisation. Specifically, the crux of their study explored how workers viewed the correlation between increases in performance and pay rises.

The researchers ran an experiment on almost 280 Israeli undergraduates and offered a base pay to play a computer game for an hour. A segment of the experimental subjects were told the bonuses they and their peers would earn, while another group were only told about their own bonuses, and a final group was instructed not to discuss wages at all during breaks in the experiment. Professor Bamberger and his colleagues concluded from the results of extensive experiment runs that “secrecy has a negative effect on worker performance, but not for the obvious reasons”.

When employees have no idea how much they earn in relation to high performing and low performing colleagues, they are unlikely to have a sense of how improving their performance will result in financial reward, the researchers said. In the worst case scenario, not having pay transparency could lead to an organisation's top performers seeking work elsewhere, where there is a clearer picture of how superior performance is compensated with better pay.

As such, the study suggests that maintaining transparency in the right areas of your business, such as wages, could be the key to the retention of your best employees.