What Happens When You Publish Salaries?

July 24, 2014 by Ben Worthy 1 Comment

The publication of what public officials earn was one of the big headline grabbing policies of the government’s Transparency Agenda back in 2010. From MPs’ expenses to the pay levels of senior Civil Servants, publication of who gets what is always tricky and sensitive- and often leads to ‘rich lists’ like this one. Now it may be the turn of high-earning academics to disclose what they earn, given this recent ICO decision in relation to Kings College London-see the background here.

The idea is that publication of salaries leads to the reigning in of large salaries, as public bodies cut back due to embarrassment or because others take action to reduce them. This also plays into a wider story, that looks set to be part of the General Election battle, about income inequality (you can see some interesting ONS statistics on earnings here).

As ever, the US is far ahead in the publishing of salaries. The Missouri Accountability Portal allows you to see all employees’ salaries at the push of a button. However, a study of public sector disclosure legislation in Canada (looking at academics) found no decrease in salaries after publication (and pointed out, bless them, that academics were paid less than they should be). Ontario’s so-called ‘Sunshine List’ of high earners made no difference either.

More interestingly, some research reveals publication of salaries actually has the opposite effect to that intended and is rather wonderfully counter-productive. This study of German CEOs found that when their salaries were published, other senior salaries went up as colleagues became aware of how much their colleagues earned and then pressured or negotiated for a pay rise. Rather than leading to cutting back or embarrassment, it led others to say ‘why aren’t I getting that much’?

The constant focus on ‘pay’ misses out a potentially more important discussion about performance-this study indicates some of the top US CEOs were getting better rewarded for poorer performances. Perhaps we could try and see if the Civil Servants paid more than the Prime Minister are doing a better job than he is? This points to a further difficulty that those in business do not have-given that neither MPs nor the Prime Minister have a formal job description, what constitutes a ‘good’ performance for a politician?