The Extreme Discomfort of Sharing Salary Information

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Th FINANCIAL — Most Americans who have jobs, according to a report from the employer-review website Glassdoor, “wish they had a better understanding of what fair pay is for their position and skill set at their company.” That is somewhat strange, given that they could gain a better understanding by just asking around.

But it is also not strange, given the discomfort that so often accompanies discussing compensation with one’s co-workers. Recently, two economists tried to quantify that discomfort, in the hope that it might reveal something about how pay discrepancies develop, and because economists like to quantify things that haven’t been quantified before.

The two researchers—Harvard Business School’s Zoë Cullen and UCLA’s Ricardo Perez-Truglia—asked their subjects, some 750 employees of a large bank in Asia that generates billions of dollars in revenue, how much they’d be willing to pay to learn what some of their co-workers earn. The median response was $13, which indicates that many employees were not all that curious. But some cared a lot more: The average of the top half of responses was $369, and the average of roughly the highest quarter of responses was $640. Some said they’d pay more than $1,000.

Despite how highly these employees valued this information, they hadn’t, by the time the researchers came calling, seemed to have done much work to track it down themselves. When asked to estimate the average of five of their peers’ salaries, they were off by an average of 16 percent, which was about as accurate as they would have been if they had just submitted their own salaries as their guess.“Some of these misperceptions,” Cullen and Perez-Truglia write, “are due in part to high search costs.” And those “search costs”—essentially, the obstacles that come with gathering information—are a matter not just of the legwork involved in asking around but also of the discomfort of doing so.

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The value of avoiding the discomfort of asking might, for some, be in the neighborhood of $1,000. Another thing the employees might have been interested in paying for was the opportunity to avoid being asked about their own salary by a co-worker, something that 89 percent of the research subjects said they’d expect to happen if they inquired about someone else’s salary.

In reviewing the accuracy of the employees’ estimates, Cullen and Perez-Truglia noted that male and female employees were off by a similar margin. That is, men didn’t seem to have better information than women, even though such a discrepancy has been thought to be one possible contributor to gender-pay gaps. 

In addition to asking their subjects how much they’d pay to gain information about their peers, the researchers asked how much they would pay to prevent others from knowing how much they themselves earned. And a pattern emerged: The higher someone thought his or her salary was relative to others’, the more money that person was willing to pay to prevent the salary from being shared.

While this study was conducted in Asia, Cullen told me that the phenomena she and Perez-Truglia examined probably aren’t Asia-specific. She says this because the bank employees she studied hailed from regions with a variety of cultural backgrounds, yet those potential cultural differences didn’t appear to correlate with any differences in the data.

Some of that reluctance comes from having a lot of money in a society that is known to be unequal. Perhaps the Asian bank Cullen and Perez-Truglia studied is a society in miniature, with each employee curious about but rarely sure of just how much more or less they make than the people sitting next to them.

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According to a 2017 survey done by The Cashlorette, a personal-finance website, Millennials are much more comfortable talking with their co-workers about how much they earn than are older generations. About one-third of Millennial workers polled said as much, which was about four times the proportion of Baby Boomers who did. These results have been interpreted as indicating Millennials’ radical destruction of taboos, but when taken alongside Cullen and Perez-Truglia’s research, they might just be an indication that the people who make the most money are the least interested in talking about it.


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