The unintended consequences of pay transparency

There was an interesting study, presented at last week’s 75th ‘Economic Policy’ Panel Meeting, on pay transparency. There has been campaigning in the UK for greater pay transparency  the Fawcett Society has its Right to Know campaign, for instance – so that perceived pay differences can come to light and be addressed.

The researchers from the European Commission – which set out pay transparency proposals last year – found that revealing people’s pay differences can affect motivation, productivity and unfair treatment claims. Last week the European Parliament ruled that EU companies with at least 50 employees should be fully transparent regarding pay.

Interestingly, the researchers found that when  women are informed about their relative wage with respect to colleagues, they react more strongly to differences in wages relative to other women than to differences with men. The researchers say this may mean there is a need for additional information or a different way of presenting information to correct for gender bias.

Knowing that you are paid less than your colleagues also affects motivation to go the extra mile. However, if trust is built over time, including through pay transparency, this can be addressed if employees understand what has led to the pay differential, say the researchers.

The study found that, overall, pay transparency increases the type of claims for compensation for unfair treatment in that weaker claims reduce while those with strong grounds grow.  However, women remain less likely to claim compensation than men, it finds, and are more likely to reduce their efforts than make a claim, which might be riskier for future career progression.

Therefore the study concludes that more is needed than simply introducing pay transparency if it is to help address gender inequities and biases. It says “awareness must become action with the introduction of appropriate instruments that enable women to claim for fair treatment without incurring monetary and reputational costs”.

Often when policies are introduced there are unintended consequences so studies like this are important. They show the need for wider cultural change, which begins with awareness of how entrenched biases are and how early that sense of lower self-worth begins. I was talking to a friend over the weekend about girls’ mental health. He, like I, has been shocked at the extent of the problem. While Covid has in many cases made things worse, thing were already bad before the pandemic. I personally think they are worse than when I was growing up – certainly they are more pervasive. Maybe that is in part because we didn’t talk about them as much before, but it is surely much more than this. They are directly targeted with messages all the time straight to their phones and it affects what they think, what they say, who they think they should be.

Where does self-esteem come from? I’m not sure, but it is essentially about finding your own way to be in a world that daily, hourly, bombards you with messages about what you should do and be – messages that are often contradictory – and that judges you on everything you are. There are no quick fixes or sudden changes, no silver bullets. And it is almost impossible to opt out.

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