Why we should openly discuss salaries at work
FORTUNE — On Tuesday, President Barack Obama signed an executive order prohibiting federal contractors from retaliating against employees who talk openly about their compensation.
Perhaps the order strikes you as pointless. Regardless of corporate policy, very few of us gab about how much money we earn with co-workers, or with friends and family, for that matter. We are, apparently, victims of America’s rugged individual ideals.
“The case can be made that the norms against discussing compensation are fairly entrenched,” says Leigh Tost, a management professor at University of Michigan’s Ross School of Business. “On the one hand, we are this culture that valorizes wealth and prestige, but we hate to talk about it. It’s something about this American ethos of the Protestant work ethic: We work hard, and we earn what we earn.”
But it’s more than just old-fashioned humility keeping American workers from discussing their pay. According to a January 2014 survey from the Institute for Women’s Policy Research, about half of all workers — 51% of women and 47% of men — report that the discussion of wage and salary information is either discouraged or prohibited by their employers or could lead to punishment. Those figures inch up at private employers, where 62% of women and 60% of men feel pressure to keep mum.
“There are companies that have written policies against it, others effectuate that silence in a range of other ways,” says Katherine Kimpel, a lawyer at Sanford Heisler, a civil rights law firm. During the hiring and salary negotiation process, human resources departments may encourage new employees to keep their salaries private. When merit increases are distributed, supervisors often remind employees that raises are confidential.
The idea behind President Obama’s executive order is that open discussion about compensation will encourage workers — especially women — to ask for raises and prompt companies to embrace pay equity.
If companies discourage talk about compensation, there’s no way for any one worker to know that he or she is underpaid. Kimpel recalls a case in which a female plaintiff had a host of complaints against her employer but staunchly believed she was being paid fairly since her bosses had informed her in private that she was one of their best-compensated employees. Kimpel discovered that the employee was right, her salary was toward the higher end. “But she didn’t know that the company used bonuses to make up a significant portion of [her male colleagues’] compensation, which meant that men with less experience and shorter tenures were making more than her,” says Kimpel. That case was settled privately.
Salary transparency gives workers ammo to advocate for themselves, Tost says. Although, knowing that your cubicle neighbor makes more money than you doesn’t necessarily mean that you two should earn the same salary. In that sense, such openness can work to a company’s benefit. That’s what prompted Whole Foods co-CEO John Mackey to disclose what every single employee earned back in 1986, shortly after he co-founded the company. He wanted to help employees understand why some people were paid more than others, with the hope that lower-paid workers would strive to be more productive.
Then again, that sort of openness demands that businesses actually have a good explanation for why one employee makes more than another one, says Jeffrey Pfeffer, professor of organizational behavior at the Stanford Graduate School of Business. “If you can’t explain that, you have a problem.”
The executive order will not immediately lead to open and honest conversations around the water cooler about what everyone in the office makes. But that directive, combined with the help of sites like Glassdoor.com — which allows employees to confidentially disclose their salaries — and the rise of a generation of workers that expects free-flowing information, signals the emergence of a more transparent workplace, Tost says.