Does Pay Secrecy Protect Privacy? Shane J. Ralston Pennsylvania State University Hazleton
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Abstract Pay secrecy or the human resources practice of concealing compensation information from employees and the wider public has become increasingly common among private firms, as well as some state-related institutions. However, the practice has also been widely criticized. Besides demonstrating that it reduces employee motivation, productivity and organizational effectiveness, human resources scholars and organizational psychologists have also argued that pay secrecy is morally wrong. Applied ethicists and moral philosophers have been relatively silent on the ethical status of pay secrecy practices. This paper aims to correct this lacuna in the literature. In a previous paper I offered a philosophical analysis of whether pay secrecy constitutes lying and deception. In this paper the most commonly given reason for sustaining the practice is examined: namely, that pay is private, the personal business of the employee him- or herself. Key Terms: Compensation, human resources, ethics, lying, deception, secrecy, business.
DOES PAY SECRECY PROTECT PRIVACY? When corporations are left to decide on pay amounts without any public accountability, all too often they make decisions that are simply not defensible, ethical, nor fair. – Edward E. Lawler (2014, December 17) Secrecy is another word for privacy. – Adrian Furnham (2014)
Pay secrecy or the human resources practice of concealing compensation information from employees and the wider public has become increasingly common among private firms, as well as some state-related institutions. However, the practice has also been widely criticized. Besides demonstrating that it reduces employee motivation, productivity and organizational effectiveness, human resources scholars and organizational psychologists have also argued that pay secrecy is morally wrong. Applied ethicists and moral philosophers have been relatively silent on the ethical status of pay secrecy practices. This paper aims to correct this lacuna in the literature. In a previous paper I offered a philosophical analysis of whether pay secrecy constitutes lying and deception. In this paper the most commonly given reason for sustaining the practice is examined: namely, that pay is private, the personal business of the employee or a confidential matter shared exclusively between employee and employer. The paper is divided into five sections. In the first, I define pay secrecy in those terms offered by human resources scholars and organizational psychologists. The second section outlines several ways in which philosophers have sought to define privacy. In the third section, I address the conditions under which keeping pay data confidential, or between the employer and individual employees, would be justified. The fourth section asks and answers the pivotal question of whether the practice of pay transparency–often found in public institutions, such as
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schools and government–violates employee privacy. The conclusion summarizes the paper’s findings and touches on some related concerns.
Defining Pay Secrecy Unfortunately, pay secrecy lacks a universal definition, let alone one that can withstand rigorous philosophical analysis. In analyzing concepts, philosophers scrutinize their definitional scope, often criticizing them for being too wide or too narrow. According to one definition, pay secrecy “can simply be viewed as a restriction of the amount of information employees are provided about what others are paid” (Colella et al. 2007, p. 56). However, this definition is excessively narrow, focusing exclusively on the quantity of pay information. It omits any considerations of quality—for instance, whether pay data is informative enough to be a decisive factor in employment decisions, whether employees have informal access to restricted types of comparative pay information and, finally, or whether the employer may control the form in which pay data is disseminated. Most human resources scholars and organizational psychologists restrict the definition of pay secrecy to withholdings of information from employees within organizations, so that employees may not know each other’s pay, talk about it and thereby make invidious comparisons. However, the concept has also been extended to cover organizations hiding pay data from the general public, particularly when those institutions receive tax subsidies or other forms of state support. While a definition that includes restricting pay information from the public-at-large might be excessively wide for an inquiry restricted to private firms, it would be within the purview of any inquiry that includes public or semi-public organizations. It also matters more for ethicists who are concerned about the consequences of keeping pay data confidential, particularly utilitarians. 2
Defining Privacy The concept of privacy is widely invoked in our modern globalized world, playing an influential role in the legal and cultural lives of citizens of Western democracies. In American law, protecting privacy came to have not only a legal and descriptive basis, describing what spheres of life were in fact private and protected, but also a warrant in morality, treating privacy as either a morally valuable interest or as an overlapping moral and legal right. Philosophical debates over the concept of privacy revolve around not only privacy’s scope and meaning, but also the question of whether it exists. Invocations of a privacy interest or a right to privacy have been met with skepticism. In a modern age, where private information is regularly shared in electronic media and forums, it is perhaps unsurprising that privacy should receive so much lip-service, but very little real protection and thus some should wonder whether it is merely a legal fiction. For instance, it has been argued that any interest or right to privacy can be equally well articulated in terms of other interests or rights, such as to bodily security or property (Thomson 1975). Other criticisms levelled at the notion of privacy include that it harms women (MacKinnon 1989), is economically inefficient (Posner 1981) and has a flimsy justification in the law (Bork 1990). Nevertheless, the more orthodox position is that privacy not only exists, but has immense value as reflected in the culture and laws of Western societies. Aristotle’s seminal distinction between public (or polis) and private (or oikos), whereby citizens have the right to participate in political life but the details of their personal or family life are shielded from public view, features strongly within Anglo-American legal systems, embodying deep-seated cultural values and ethical standards. The most common reasons for protecting privacy are that (1) it is a good social policy and (2) it preserves human dignity. The social policy argument is for the most part utilitarian,
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aiming to advance the general welfare and correlative societal interests, such as the sanctity of family and sexual life or the protection of the person from public shame or ridicule. The human dignity argument, on the other hand, is mostly deontological, relying on the notion of “inviolate personality,” or that invasions of privacy demean the personality and affront the dignity of all human beings, so that preventing these invasions is socially valuable (Bloustein 1964). Moreover, the capacity to control information about ourselves and access to that information is integral to acting as a rational, autonomous agent (Rachels 1975). These two arguments will inform the later evaluation of the position that pay should be private, or at least a matter shared exclusively between employee and employer.
Pay as a Private Matter The primary intuition guiding most people’s judgment that pay ought to be private is that what an employee is paid is their own personal business. It is a confidential matter to be discussed only between an employee and his or her employer. Pay information falls squarely on the private side of the private-public distinction because unlike most public matters pay is not something that people usually share openly with others. Some employers take the extreme position that all employee discussions of pay or pay comparisons ought to be strictly prohibited. On the other extreme are employers wholly committed to pay transparency, especially government entities, which classify employees according to pay grade and make pay data publicly available. A compromise between these two diametrical positions is for an employer to make the criteria for determining pay levels public, while hiding what specific employees are actually compensated. Regardless of the exact compensation plan or disclosure arrangement, one justification for the practice of pay secrecy is that employees demand that compensation information remains confidential, or between them and their employer. 4
Is keeping pay private good organizational policy? Telling a fellow employee how much
money one makes can generate many deleterious consequences—e.g. feelings of anger, distrust, a sense of injustice, unhealthy competition, loss of friendship—many of which flow from the act of making of invidious comparisons. Invidious comparisons include the weighing up of qualifications, skills, abilities, education, positive attitude and even past opportunities afforded by conditions outside of a person’s control (e.g. the socioeconomic status of one’s family). In the worst case scenario, invidious comparisons can lead to the rapid disintegration of social cohesion within organizations. At the very least, open discussions and comparisons of pay reduce employer control over employers. The opposite is true of pay secrecy. According to Adrian Furnham (2014), “secrecy increases [employer] control] and the ‘feel good’ factor.” Pay secrecy is a pervasive organizational practice because it permits executives and middle managers to maintain and expand systems of organizational control (Colella et al. 20007, p. 61). The policy also reduces workplace conflict and promotes civil and peaceful relations between employees, who would otherwise obsess about pay differentials and their justification (Gomez-Mejia& Balkin 1992; Steele 1975). Do pay secrecy practices protect human dignity? Employers who adopt pay secrecy policies often defend them on the grounds that they are acting in the best interests of their employees and for the overall benefit of the organization (Abercrombie & Hill 1976). The difficulty with this justification is that it is highly paternalistic. According to researchers, “[p]ay secrecy can be viewed as a paternalistic policy when managers argue that pay should be kept secret for the benefit of their employees, because (1) employees really want pay kept secret, (2) it will upset them to know what others are making, or (3) they make ‘irrational’ decisions (such as leaving) if they know what others are being paid” (Colella et al. 2007, p. 61). Since protecting
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autonomy is essential to respecting human dignity, the minor offense pay secrecy poses to an employee’s inviolate personality, in terms of releasing information deemed private, could be outweighed by the danger of overbearing employer paternalism. Employers with pay secrecy policies deny employees the opportunity to exercise their full autonomy by limiting their access to pertinent information that should inform their employment decisions—for instance, whether or not to leave their current employer for another employer that would pay her more relative to her co-workers (Danzinger & Katz 1997). Edward Lawler, the pre-eminent authority on pay secrecy and an advocate for openness, identifies two levels of secrecy: (1) hiding data about pay levels, medians and distributions and (ii) keeping pay rates of individuals secret. He claims that “there is no question” that the former should be within the public domain, so that prospective employees and competing firms can make informed, objective comparisons (Lawler 2014, December 17). Releasing individuals’ compensation clearly treads on privacy concerns though. Still, Lawler insists that it is justifiable to disclose individual pay rates under the condition that employees are told that this is the organization’s policy up-front, prior to being hired: “I think that despite the personal privacy issue, It is reasonable to make all individuals’ pay public. This practice should be made clear to employees when they join the organization, and if they see this as a serious invasion of their privacy, then they can choose to work elsewhere” (Lawler 2014, November 12). Lawler’s recommendation for openness on both levels stresses the importance of human autonomy, or affording employees the opportunity to freely choose to work for an organization with pay secrecy or transparency
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Pay Transparency Violates Privacy Although commonly practiced in government agencies, pay transparency is not a popular human resources policy. Employee survey data supports the contention that employees would rather trade off knowing information about their co-workers’ compensation for assurances that their own compensation will be kept fully confidential (Walsh 2000). Some have argued that making pay data publicly available clearly connects compensation to performance. If employees know why they are paid what they are paid, then they are more likely to know how to perform better and thereby improve their pay level. “When the basis of pay is secret,” several researchers note, “individuals do not know why they receive the pay they get” (Colella et al. 2007, p. 62). However, pay transparency does not necessarily reveal how pay reflects performance. As mentioned above, it is possible to make compensation criteria public without disclosing specific employees’ actual pay levels. Likewise, it is possible to disclose all employees’ actual compensation while hiding the criteria by which their pay level is determined. As Muhs (1985) insists, “[m]erely making salary information public does not automatically tie pay to performance!” (p. 50). Another concern for critics of pay transparency is that these schemes tend to generate restricted pay distributions in order to give the appearance of fairness. If all employees know each other’s pay, then to prevent conflict it makes sense to keep levels fairly equal. According to Collella et al. (2007), “the pay distribution under pay openness would tend to be narrower than under pay secrecy so that opportunities for pay raises would appear to be small” (p. 63). In order to prevent great pay disparities, employers would not offer pay increases, unless they were broadly based or applied to large categories of similarly-ranked workers. Also, employers in cutting-edge industries (e.g. high-tech) invest extensively in creating the best and most 7
competitive compensation plans, hiring consultants and outside firms to design them in order to attract high-quality employees. So they have an incentive to keep them private or at least out of the hands of competitors. According to one commentator, “Human resources professionals believe that properly designed employee compensation programs can represent a source of company competitive advantage” (Bierman & Gely, 2004, p. 177). Sharing company pay plans with the outside world would mean pointlessly wasting the high-dollar original investment in their design, since employers would consequently gain little or no advantage over their competitors once they were made public. Probably the most hyperbolic objection to pay transparency in its relation to privacy protection is that it unjustifiably expands the oversight of a panoptic or “big brother” state. For these objectors, making pay public is on par with installing cameras in public spaces to fight crime or mining consumer data from cellular providers for evidence of terrorist activity. According to Furnham (2014), protecting privacy is “of increasing concern in a technologically sophisticated surveillance society.” However, this position is a slippery-slope argument for the consequences of pay transparency policies, which operate at many government and public agencies without leading to large-scale incursions against personal privacy. Among the disadvantages of transparency’s competitor, pay secrecy, is that it affords opportunities for manipulating workers, preventing political behavior aimed at improving wages, stopping union involvement as well as reducing pay equity between women and men, minorities and whites. Therefore, employees must ask themselves, privacy but at what costs? Are they willing to make trade-offs between core workplace values—for instance, privacy and equity—that they hold dear?
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Conclusion: Pay Secrecy and Privacy So far, the operative norm in the U.S. is to enforce privacy-protecting pay secrecy policies, and thereby sustain a so-called ‘code of silence’ with respect to employee compensation: “All in all, surveys of employees have found that a majority are in favor of workplace pay secrecy policies, and the primary reason they give for favoring such policies is that such policies protect privacy” (quoted in Edwards 2005, p. 49). The issue for ethicists is whether the status quo position in favor of pay secrecy would change if employees heard the moral arguments in favor of pay transparency. Probably the most cogent among these arguments is that pay secrecy constitutes a paternalistic human resource policy that undermines worker autonomy, facilitates unfair pay practices and prevents union organizing. Conducting experiments that both expose employees to arguments for and against pay secrecy as well as offer them the comparative cultural experience of organizations with and without secrecy might be in order. According to Schuster and Colletti, “[k]eeping pay levels secret is part of organizational culture and, if it is advantageous to change the culture and make pay levels known, further experimentation with the impact of an open pay system is advised so that the perceptions of the most valued group of performers can be measured while the cultural change is progressing” (1973, p. 40). Although survey research supports the contention that most employees currently favor organizational cultures supporting pay secrecy, the preference for secrecy could be indexed to generational concerns and values, so that the practice, over time, might just be “on the wane” (Tugend, 2014).1 Finally, empirical research suggests that an organizational climate of secrecy, even when it protects privacy, can encourage employees to behave unethically (VanSandt 2003; Weber, Kurke, and Pentico 2003).
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Ralston, S. (2015). Pay secrecy and ethical culture at Penn State: An action research project. Academia.edu. Available at https://www.academia.edu/23723828/Pay_Secrecy_and_Ethical_Culture_at_Penn_State_An_Ac tion_Research_Project Schuster, J R., and Colletti, J.A. (1973, March). Pay secrecy: Who is for and against it? The Academy of Management Journal, 16, 1, 35-40. Steele, F. (1975). The open organization: The impact of secrecy and disclosure on people and organizations. Reading, MA: Addison-Wesley. Thomson, J. (1975). The right to privacy. Philosophy and Public Affairs, 4, 295-314. Tugend, A. (2014, August 22). Secrect about salaries may be on the wane. The New York Times. Available at http://www.nytimes.com/214/08/23/your-money/secrecy-about-salaries-may-be-onthe-wane.html?_r=0 VanSandt, C. V. (2003, March). The relationship between ethical work climate and moral awareness. Business and Society, 42, 1, 144-52. Walsh, M. W. (2000, July 28). Workers challenge employers’ policies on pay confidentiality. New York Times. Available at http://www.nytimes.com/library/financial/072800discuss-pay.html Weber, J., Kurke, L. B., and Pentico, D. W. (2003, September). Why do employees steal? Business and Society, 42, 3, 359-80.
Notes 1
The conclusions of my own action research study of pay secrecy and organizational culture at Penn State give us some reason to believe that the preference might not just be generational, but also associated with positional advantages an employee gains within the organization under secrecy and transparency policies. See Ralston (2015).
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