David Burkus: Would Work Improve If You Knew What Your Colleagues Get Paid?

Dec 1, 2017

Part 1 of the TED Radio Hour episode Transparency.

About David Burkus's TED Talk

How much money you make is a taboo subject. But business writer David Burkus says you should know how much your coworkers are paid. It can improve your job satisfaction--even reduce pay inequality.

About David Burkus

David Burkus is an author, podcaster and associate professor of management at Oral Roberts University.

His latest book, Under New Management, challenges traditional principles of business management. He is also the author of The Myths of Creativity: The Truth About How Innovative Companies and People Generate Great Ideas.

He serves on the advisory board of Fuse Corps, a nonprofit dedicated to making transformative and replicable change in local government.

Copyright 2017 NPR. To see more, visit http://www.npr.org/.

GUY RAZ, HOST:

It's the TED Radio Hour from NPR. I'm Guy Raz. So imagine you've just gotten a new job. And on your first day, you head to a conference room for the new employee orientation.

(CROSSTALK)

UNIDENTIFIED MAN: Good morning, everyone. There's bagels at the back table. Feel free to grab one.

RAZ: And everything seems pretty normal, except...

UNIDENTIFIED MAN: Before we get started, just go around and introduce yourself, your new role here and how much you get paid.

AMANDA: Hi, everyone. My name is Amanda. I'll be working in accounting, and my salary is $52,000 a year.

JESSE: Hey, I'm Jesse (ph), project manager for IT and 90K. Plus, I'll probably get a bonus.

ANNIE: Hi, everyone. I'm Annie (ph). I'm excited to be a sales associate, and I make $50,000.

DAVID BURKUS: So I believe that inside of a company everybody should know what everybody gets paid.

RAZ: Which is crazy.

BURKUS: (Laughter). You said it, not me.

RAZ: This is David Burkus. He's a professor who writes about leadership and business management.

BURKUS: Yeah. But if you asked my 5-year-old son, I write books, I give talks, and I take care of him.

RAZ: And David's known for his ideas about salary transparency in the workplace.

BURKUS: I mean, it's sounds - you're right. It sounds crazy, and I thought that. When I started researching for my book, I thought I was just going to explain why it works in some companies, but it might not work in others. But the truth is I think almost every company can inch closer to transparency. They probably can't go from secrecy to total transparency overnight, but we all have some steps we can take.

RAZ: On the show today, transparency - ideas about how more honesty and openness could radically change our governments, our businesses, our institutions for the better or maybe for the worse.

(SOUNDBITE OF MUSIC)

RAZ: So I have a question for you, David.

BURKUS: Yeah?

RAZ: How much do you get paid?

BURKUS: (Laughter). So I have trouble with this question. I don't have a salary anymore. I can tell you the last salary I got was $64,000 a year. But I'm kind of in this writer life. I don't know how to answer the question because I piece it together from so many different places.

RAZ: Here's David Burkus' take from the TED stage.

(SOUNDBITE OF TED TALK)

BURKUS: At work, how much do you think the person sitting in the cubicle or the desk next to you gets paid? Do you know? Should you know? Notice, it's a little uncomfortable for me to even ask you those questions. But admit it, you kind of want to know. Most of us are uncomfortable with the idea of broadcasting our salary. We're not supposed to tell our neighbors, and we're definitely not supposed to tell our office neighbors.

The assumed reason is that if everybody knew what everybody got paid, then all hell would break loose. There'd be arguments. There'd be fights. There might even be a few people who quit. But what if secrecy is actually the reason for all that strife? And what would happen if we removed that secrecy? What if openness actually increased the sense of fairness and collaboration inside a company? What would happen if we had total pay transparency?

For the past several years, I've been studying the corporate and entrepreneurial leaders who question the conventional wisdom about how to run a company. And the question of pay keeps coming up, and the answers keep surprising. It turns out that pay transparency - sharing salaries openly across a company - makes for a better workplace for both the employee and for the organization.

RAZ: OK. So, David, you've written about companies that have actually tried this in the real world. For instance, you looked at this Internet startup called Buffer. So can you tell me about them? Like, how did they handle salary transparency?

BURKUS: So in Buffer's case, it's a formula they use that takes into account experience, the job that you're doing, the city that you live in, so cost of living adjustment, et cetera - they're a startup - so whether or not you chose to take equity or not. All of those things get plugged into a formula and then that formula spits out what the salary is going to be. And so you know, OK, I need to do these things if I want to make that number higher.

RAZ: But that doesn't - so what do they do? They have like a white board in their, like - I don't know - their water cooler? Like, their lunchroom is like, here is what everybody gets paid. And you can just see that?

BURKUS: It's not a white board. I think it's the Internet, and everybody can look up the formula. They actually went what I would call sort of super transparent and posted it on a blog on their website at one point. So you could literally see here's what every single person in the company gets paid. They have a commitment to transparency in that regard that they share it openly, which I also don't advocate every company does.

RAZ: Well, how did that benefit Buffer? Like, how did that make it - make life be easier or better for the employees or for the company?

BURKUS: So what I think the transparency does is it says here's what we value. Here's the formula that we're using to calculate that so you can see why. Here's how to make more money in the company. We're going to be open and honest about the differences between our people and the differences between salaries.

And so when word of Buffer's commitment to transparency started spreading around, they got inundated with resumes and applications because I think in the back of a lot of people's minds - they don't actually trust that their employer is looking out for them. And they often can sort of think, maybe they're trying to screw me out of some money. And Buffer can't do that. They've handcuffed themselves to doing what's right by their employees because they're transparent about it.

(SOUNDBITE OF TED TALK)

BURKUS: Keeping salaries secret leads to what economists call information asymmetry. This is a situation where, in a negotiation, one party has loads more information than the other. And in hiring or promotion or annual raise discussions, an employer can use that secrecy to save a lot of money. Imagine how much better you could negotiate for a raise if you knew everybody's salary.

Economists warn that information asymmetry can cause markets to go awry. In fact, they even warn that information asymmetry can lead to a total market failure. And I think we're almost there, and here's why. First, most employees have no idea how their pay compares to their peers. In a 2015 survey of 70,000 employees, two-thirds of everyone who's paid at the market rate said that they felt they were underpaid. And of everybody who felt that they were underpaid, 60 percent said that they intended to quit regardless of where they were - underpaid, overpaid or right at the market rate.

Next, information asymmetry, pay secrecy, makes it easier to ignore the discrimination that's already present in the market today. In a 2011 report from the Institute for Women's Policy Research, the gender wage gap between men and women was 23 percent. This is where that 77 cents on the dollar comes from. But in the federal government, where salaries are pinned to certain levels and everybody knows what those levels are, the gender wage gap shrinks to 11 percent. And this is before controlling for any of the factors that economists argue over whether or not to control for. If we really want to close the gender wage gap, maybe we should start by opening up the payroll.

RAZ: OK. So I want to ask you first about this idea of information asymmetry because, basically, your argument is that without pay transparency, the power dynamic is heavily weighted in favor of the employer - right? - because they've got more information.

BURKUS: Yeah, exactly. So - and they have - I mean, it's sort of like - it used to be this way in buying cars, and that's why we we're all sort of so worried. But now in an age of transparency of information, you can know everything about whether it's a new or used car and know what price in that little back-and-forth negotiation you should offer.

That wasn't happening in job interviews. In fact, what I think is interesting is, in the past 18 months or so, several states have actually passed state laws that forbid companies from asking prospective hires what your salary at your previous job was. They're trying to actually reduce the information asymmetry.

RAZ: Yeah because if they ask you that, you tell them the truth. In their minds, they might be thinking, oh, well, that's awesome. That's like 20 percent less than we pay.

BURKUS: Yeah, no. When I was teaching full-time, I used to tell my students there's only three possible answers to that question, and two of them are bad news. You either made more, and so they discount you because they don't have the money to afford you. You made the same. That's good because there's a match. Or you made under what they were expecting. And that's bad because now you're not going to get paid the full potential of what you should have.

RAZ: So I guess if you're asked the question by a prospective employer - like, what do you make? - it's probably in your interest to kind of lie.

BURKUS: (Laughter). I mean, I'm not sure that lying solves it because then the information asymmetry goes the other way, right? You know that you're lying. But in most of the HR - chief HR officers and people that I talked to, they want a pay system that's fair. And they also want people to believe that it's fair.

RAZ: So do you think, like - do you think if there was pay transparency, it would lead to a more just and equitable, you know, country, society, community environment?

BURKUS: I mean, I think inside of organizations, it would lead to a more just organization. And, truthfully, I think most research from motivation science and the experiments of companies are showing that employees tend to be happier and more motivated when they know that the system is fair because they can see it. Like I said earlier, it's sort of a handcuff to the idea of fairness and transparency because you're saying here's what it is. And if you find a problem with it, now we have to change it because it's public. But then the other thing is it's a very public signal that we care about this.

And actually, Buffer's a really good example of this. When they first went live with the formula in talking about what everybody's salary was, they found out that they had a gender wage gap. But they could take steps to fix the formula to fix that. And it turned out to be for a really simple reason. Basically, men were lying about how much experience they had. And women were telling the truth. But they could fix that in the way that they calculated the formula and reduce it.

(SOUNDBITE OF TED TALK)

BURKUS: Now, I realize that letting people know what you make might feel uncomfortable. But isn't it less uncomfortable than always wondering if you're being discriminated against? Openness remains the best way to ensure fairness, and pay transparency does that. And in study after study, when people know how they're being paid and how that pay compares to their peers, they're more likely to work hard to improve their performance. They're more likely to be engaged. And they're less likely to quit.

Pay transparency takes a lot of forms. It's not one size fits all. Some post their salaries for all to see. Some only keep it inside the company. Some post the formula for calculating pay. And others post the pay levels, and affix everybody to that level. But we can all take greater steps towards pay transparency. For those of you that have the authority to move forward towards transparency, it's time to move forward. And for those of you that don't have that authority, it's time to stand up for your right to.

RAZ: I mean, our culture would have to radically change for this to be possible, right? I mean, don't you think that secrecy around pay is just like ingrained in our culture?

BURKUS: I mean, I think it is. The thing that I find fascinating is that in 2017, 2018, people are more comfortable talking about their sex lives, which used to be even more taboo than salaries, right? They're happy to talk about everything until it comes time to, here's what I get paid. And I think that's for two reasons. One, we're an individualistic society so we tend to think that's my private arrangement with the employer. The other thing is I think we have this huge problem where we think that what our salary is is what we're worth to the world, which is super wrong on so many levels. So, clearly, there's a cultural element to what is private, et cetera.

The other thing is that this is relatively new to U.S. history, too. So when the first income taxes were leveled, for example, one of the ways that they enforced that is they kept a roster at the county courthouse of here's what people claimed and what they said they earned and then what they owed in income taxes. And you could go look that up. If your neighbor with a different farm looked like they were doing really well, you could go, well, I wonder. And you could go look it up. And society-wise, as a whole, if everybody could look up everybody's salary, you know, on the IRS website, I don't think I advocate for that. But beyond that, I mean, inside of organizations, more transparency appears to be a better thing.

RAZ: David Burkus - he's a writer, speaker and associate professor at the business school at Oral Roberts University in Oklahoma. You can see his entire talk at ted.com. On the show today, ideas about transparency. And in a moment, an even more radical idea about transparency at work. Stay with us. I'm Guy Raz, and you're listening to the TED Radio Hour from NPR. Transcript provided by NPR, Copyright NPR.