"In a recent study published by the Academy of Management Journal, Prof. Peter Bamberger of Tel Aviv University's Recanati School of Business and Dr. Elena Belogolovsky of Cornell University's School of Industrial and Labor Relations have published a study that explains why pay secrecy is likely to hurt an individual's work performance and prompt top talent to seek new employment. They conclude that pay secrecy weakens the perception by employees that a performance improvement will be accompanied by a pay increase. It also finds that high-performing workers are more sensitive than others when they perceive no link between performance and pay; suggesting that pay secrecy could limit a company's ability to retain top talent."
So who, if anybody, benefits from pay secrecy?
If such information was open, people's perception of their coworkers would be in direct comparison of pay, not of the value they bring. Sometimes the less productive but experienced worker who knows how to handle everything is more valuable than the young hotshot who's fast but makes more mistakes and asks more questions. You also want to reward loyalty with regular raises, so even for equal work, it is unlikely everyone will have equal pay.
A better system may be to tie a quarterly performance bonus to pre-selected metrics. For example, for a doctor, number of patients seen, minus 10x the number of complaints, or for a programmer, number of bugs fixed, minus 3x the number of new bugs introduced. The downside is some people will work exclusively toward those metrics, avoid the hardest bugs, or possibly even sabotage their colleagues. Management can play favorites.
However in today's corporate culture, a person's salary has little to do with their actual value to the company.
Maybe making salaries open would cause companies to assign salaries in relation to value, instead of simply trying to squeeze employees as hard as they can.
Perhaps an issue is that some companies feel that no employee should make more money than their immediate manager, so management keeps things obfuscated to protected themselves? I once worked for a company that forced all of its top-tier developers into management positions; and if they refused, forced them out of the company. It made no sense to me except that the VP of IT was once a developer and rose up through the management ranks, and he expected every other developer to feel the same way.
In Mondragon (see wikipedia), the employees of the company vote on the wage conditions of the entire company, including the CEO, who the employees elect. Everybody knows how much everybody earns. It's a very successful organization.
Sounds like something resembling a co-op. Sure, they can be successful, even wildly so. They're also not particularly attractive to investors, perhaps because they tend to view investors as a steaming pile of turd (which is mostly a fair assessment anyway).
Of course, acting like skilled labor is more important to companies than people with no involvement with a company outside of ownership of some shares is downright un-American, so i wouldn't worry about suddenly efficient organizations rising up to follow their lead anytime soon.
Yes, it is a co-op.
Pay secrecy benefits only the employer, because it can then have different pays for the same job, with some earning much less than what would ask for if pay information was public. Think of it like the inverse of airlines' price segmentation.
I think there are benefits to keeping pay secret as well as benefits to being open about it.
The company where I work is certainly hush hush about it. That leads to some folks being outstanding and underpayed, others are payed hand over fist and should have been shown the door years ago. If the data was made open, I think that there would be a lot of resentment to some folks while others would suddenly start hitting the job websites looking to get their worth.
When it comes down to it, I think there isn't a "this is the right way" of the two, but rather it depends on the company itself. I think if I was to run a company, I would be hiring the best there is and paying them accordingly, setting very high salaries for the role - but making sure that I get folks who will then be worth the money i pay them. With that, I would have open books. If everyone is performing well, there won't be any issues with people being payed differently. If I was employed to manage a company with a lot of stale staff, some performing well, others badly, there would be no way I would show salaries - it will only cause discontent amoung my good workers while basically telling my bad ones that they can keep doing what they are doing without any repercussions.
Back in 90 or so I was working for a government contractor. When I was hired I was told in no uncertain terms that discussing salary with co-workers was grounds for immediate termination.
Yet, our job title was printed on our business cards. And on the bulletin board, in the section marked "stuff we have to post for legal reasons", was a chart showing the salary range for each job title. Pretty narrow ranges too, like "Senior Software Engineer" was $60-%63k.