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        Research: Pay secrecy can lead to greater trust, retention within organizations

        September 21, 2020 By Joe McAdory

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        “Pay secrecy allows employees to dismiss such doubts about employer fairness, resulting in higher retention than if pay were more transparent.”

        The Harbert College is committed to producing research that advances the academy, extends business thought, and shapes best practice.

        One might believe that salary or pay secrecy within an organization could be grounds for increased employee distrust and turnover. That’s not necessarily the case, Jaclyn Koopmann, Associate Professor in Management at the Harbert College of Business, revealed.

        Koopmann’s co-authored paper, “Best Not to Know: Pay Secrecy, Employee Voluntary Turnover, and the Conditioning Effect of Distributive Justice,” was published by the Academy of Management Journal and found that pay secrecy within organizations can be associated with higher trust levels and greater retention under certain conditions.

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        Dr. Jaclyn Koopmann is an Associate Professor of Management at the Harbert College of Business.

        Koopmann and co-authors, Valeria Alterman (University of Miami), Peter Bamberger (Tel Aviv University), Mo Wang (University of Florida), Elena Belogolovsky (Vanderbilt University and Lycoming College), and Junqi Shi (Zhejiang University), argued that pay secrecy -- which might be perceived in part as unfairness in how pay is determined or the pay procedures of the firm -- is an uncertain piece of fairness information, failing to reveal exactly how pay is determined. Therefore, employees cannot know for sure how fair or unfair pay procedures actually are.

        “The common thought before this study was that if employees feel their pay levels were unfair compared to their performance levels (i.e., lower distributive justice) and they feel that the procedures for deciding pay in a company are also unfair (i.e., lower pay-related procedural justice), they are likely to have particularly negative fairness perceptions about the company and be more likely to quit than other employees," Koopmann said. "However, when pay procedure justice information is also uncertain, as is the case with pay secrecy, our research suggests that employees do not form such fairness perceptions in the same manner. Instead, cognitive biases that lead to the discounting of negative justice information come into play and employee fairness reactions are not as severe as once thought when pay procedural fairness information is also uncertain. Thus, pay secrecy can actually help maintain and be associated with higher trust levels, even when distributive justice -- how equitably pay is thought to be awarded -- is lower."

        A second related takeaway is that because pay secrecy makes it easier for employees to deny or dismiss any bad news, such pay practices don’t always affect employee outcomes the way we might expect.

        “While we might expect pay secrecy to reinforce a tendency of employees to separate or leave when they have a sense that pay is unfair in their company, what we find is the opposite: pay secrecy allows employees to dismiss such doubts about employer fairness, resulting in higher retention than if pay were more transparent," Koopmann added.

        But pay secrecy isn’t for everyone. Organizations considering adopting pay secrecy should recognize that when employees perceive that their pay is equitably distributed, adopting pay secrecy is unlikely to benefit turnover and might even increase employees' intentions to resign, harming their ability to retain talent, Koopmann noted.

        “For these organizations, our findings suggest it is better to be more transparent regarding pay and how it is determined,” she said. “If pay secrecy is enacted to some degree, these organizations may benefit from sharing some form of aggregate salary information to their employees even if they can't be fully transparent. For example, some companies are more fully transparent regarding pay (e.g., Whole Foods) but other companies have adopted some degree of pay transparency by sharing salary ranges with employees (e.g., Glitch) or making their fair pay policies public (e.g., Procter & Gamble).”

        The Academy of Management Journal is an elite publication. According to Koopmann, “It’s an honor to have research published in an elite journal – it’s truly a learning experience in that you get the privilege of presenting your and your co-authors’ research ideas to the top experts in the world. "

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