New research finds salary transparency with low monitoring costs helps close the gender pay gap

Salary transparency can reduce the gender pay gap, but it's key that the cost of publicly monitoring salaries is reduced, according to new research published in Strategic Management Journal. The researchers found the more visible or highly ranked the institution, the more aggressive their response.

Elizabeth Lyons of the University of California, San Diego, and Laurina Zhang of Boston University began with the question of whether salary transparency reduced gender pay inequality and — if so — through what channels? They focused on these questions in the context of tenured and tenure-track faculty in Canadian universities, making use of Ontario’s Public Sector Salary Disclosure Act of 1996, which mandated salary disclosure of public employees earning at least $100,000. The policy includes an online searchable government database, significantly reducing the cost of accessing salary information for the general public.

“It's not just about the legal policy, it's also about whether that legal policy credibly reduces the cost of the public to observe what the gender wage gap is across these organizations,” Zhang says. She and Lyons compared this effect with a policy in another Canadian province that was not accompanied by a publicly available online database and they didn’t find it reduced the gender pay gap.

The findings suggest that low-cost access to salaries places pressure on high-profile organizations to reduce the gender gap in an effort to avoid public scrutiny of their pay practices. The researchers did not, however, find women used the salary information to successfully negotiate higher pay.

“Improvement in the gender pay gap is really driven at the organization level,” Zhang says. “It's really about organizations that anticipate public scrutiny and perhaps backlash in the future, they’re more likely to implement institution-wide changes.”

This particular policy also strays from those that require disclosure of salary at the aggregate level for firms of a certain size, which Zhang says can have a muted effect because they only disclose what average male versus female salaries are without much detail. It’s difficult to assess gender inequality with such coarse information that doesn’t specify the individual’s role, for example. A more detailed database like the one in Ontario makes for a clearer comparison.

But there is an obvious cost to embracing salary transparency and closing the gender gap — especially at organizations where that gap is particularly wide. These institutions will have to spend more to equalize pay across genders. “The study highlights why there are hurdles to salary transparency being implemented in a wide way,” Zhang says. “It puts a lot of pressure on organizations to enact change once they do so.”

There’s potential for salary transparency to increase a company’s competitiveness, but Zhang says this would likely exist largely in the private sector where movement across companies is more common. In an industry like academia, where this research was focused, there’s less likelihood for competition from salary transparency because movement between high education institutions is less common.

Strategic Management Journal, published by the Strategic Management Society, is the world’s leading mass impact journal for the highest quality research on a diverse mix of topics relevant to strategic management.