Salary is out of doubt the strongest driving force for a worker. However, a recent study circulated by the National Bureau of Economic Research revealed that it’s not just their own paychecks that motivate employees, but also their bosses’.
While many companies have restrictions on employees disclosing their salaries, 30% of workers aged between 18 and 36 admitted that they talk to their co-workers about it.
The intention to discourage sharing such information is understandable – to avoid resentment among employees – but the study shows that the lack of transparency may affect the workers in an unexpected way.
Analysing the data from 2,060 employees from a large commercial bank, Zoë Cullen, assistant professor at Harvard Business School, and Ricardo Perez-Truglia, assistant professor at UCLA Anderson School of Management concluded that if employees think their bosses are earning massive paychecks, they are more willing to work hard.
The researchers explained that it creates an expectation where employees think they could earn as much if they got to the upper management level. To put into perspective, the study found that every 1% increase in perceived manager salary increases the hours worked by 0.15%.
On the flip side, if employees think they earn less than their peers, they may cut back on their effort, including working fewer hours, sending fewer emails and under-performing in sales. From the data collected, every 1% increase in a coworkers’ perceived salary, a 0.94% decrease in the number of work hours was found.
But the effect doesn’t end there. The study suggests that the perceived salary also correlates with attrition, with every 1% increase in perceived co-worker salary leading to a 0.225% increase in chances for the employee to leave the company.
Lydia Frank, vice president of content strategy at PayScale told MarketWatch that salary transparency is critical if employers want to retain staff, as employees tend to care more about the amount their co-workers earn than the salary of someone who has the same job but at a different company.