Pay Secrecy Measures Are Recovering Old Ground

In early April, President Obama signed an Executive Order prohibiting federal contractors from retaliating against employees for discussing their pay.  Policies that prohibit employees from talking about pay are called “Pay Secrecy” policies.  This move was linked to the President’s agenda of promoting workplace gender equality.  The idea is that prohibiting workers from discussing pay contributes to women making less than men.  It’s an issue that a politically divided Congress was not able to reach agreement on when it considered the issue.  As an executive order, the reach of this action is limited to federal contractors.  Therefore it doesn’t have nearly the impact that a congressionally approved law would have, though compliance would be extremely important to those to whom the order applies.

Arguably, retaliation for many types of pay discussion are already prohibited by the National Labor Relations Act.  That law, of course, applies to a larger group than just federal contractors.  The Act prohibits employers from interfering with “concerted activities for the purpose of collective bargaining or other mutual aid or protection.”  Violations of the Act are punished by the Federal Labor Review Board.  Penalties can include providing workers terminated for violations of pay secrecy policies with backpay or reinstatement.  Since the Executive Order applies only to federal contractors, the penalty could be loss of the federal contract, which could be extremely costly.

So just how widespread are pay secrecy policies anyway?  A 2011 poll taken by the Institute for Women’s Policy Research found that nearly half of all employees surveyed reported that discussing pay was either prohibited or discouraged.  A 2001 poll of private employers found that more than a third had specific policies in place in regarding pay secrecy.  Admittedly, these policies cover a wide range, from discouragement of salary discussions to outright prohibitions.  Many employers feel that salary discussions can lead to feelings of hostility between co-workers and contribute to disharmony in the workplace.

A 2012 Forbes article on the subject of pay secrecy suggests that some employers also use it as a public relations measure, or even to cover up for poor salary decisions, particularly with perceived overpayment of some employees.  That article suggests that pay secrecy is poorly suited to those purposes, and that in the absence of actual information, employees will overestimate the pay of coworkers.  In this way pay secrecy policies may only increase pay dissatisfaction.  Data suggests that many companies put great effort into determining appropriate compensation for their employees.  If an employer expends such efforts to scale their employees’ salary in a way that drives them to achieve and fairly rewards workplace success, it may be that forbidding salary discussion is unnecessary and counterproductive.

With the current political climate having soured to pay secrecy policies, their association with workplace gender inequality, and an array of potential regulatory devices arising or on the horizon, now may be a good time for employers to consider their own policies in this area.  It may just be that they find that maintaining a pay secrecy policy simply isn’t worth the trouble.