In most cases, pay secrecy policies - whether formal or informal - are illegal. The National Labor Relations Act contains a provision (29 U.S.C. § 157) that gives all employees the right to engage in "concerted activities," including discussing their pay and other terms and conditions of employment with each other. Still, these policies are very common. A recent study by the Institute for Women’s Policy Research found that about half of all employees surveyed were either "discouraged or prohibited from discussing wage and salary information."
Why do some employers try to keep pay a secret? Well, it basically comes down to protecting their bottom line. Payroll is one of the biggest expenses for businesses and organizations. Though shady, underpaying employees can save a lot of money. And despite laws banning such practices, many employers know these laws are rarely enforced and the penalties for violating them are pretty small.
But this issue is much more complex than companies simply trying to stay in the black. Pay secrecy allows biases to persist. Specifically, these policies contribute to the gender pay gap.
“An emerging body of research finds that pay secrecy policies... disadvantage women in particular,” says Jake Rosenfeld, professor of sociology at Washington University. “First, these practices prevent women from finding out whether they are being underpaid. Second, in cases where women do discover a pay discrepancy by violating a pay secrecy policy and asking colleagues about what they make, their attempts to remedy the disparity could be met with retaliation from an employer.”
So, what can we do to promote transparency and close the gender pay gap? Legislation is a step in the right direction, but it's only a small piece of the puzzle. We need to model our organizations after the public sector where salaries are published openly. Hiring processes also need to be revamped to place less emphasis on a candidate's salary history and more emphasis on key factors that can boost salary, such as tenure, higher education and fluency in a language other than English.
If we can all get closer to this and do away with arbitrary merit increases, there will be more clarity and less conflict when it comes to fair pay.
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