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Monday, June 11, 2007

Show us the Money

I strongly endorse Susan Reed's plea that companies should reveal all compensation paid to each employee (Show us the money, New York Times, June 4, 2007, A23). Over 40 years ago, Industrial Psychologist, Ed Lawler, showed that pay secrecy reduced motivation in organizations. This occurred because in those answers to "nosy questions about pay to find out where they ranked" people lied and said that their compensation was greater than it actually was.

This had two effects: first people didn't believe there was any link between performance and pay because even mediocre performers seemed to be receiving high pay; second aspiring to high pay as a goal was devalued because any one, it seemed, could attain it. This results in reduced motivation to perform well.

Such transparency will also make more salient the gross disparity between top manager's pay and that of the rank and file. That and the desire not to have to justify salary differentials will make it difficult for firms to accept this transparency.
Sent to New York Times

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