How Salary Sharing Hurts the Workplace

Gary Shapiro President and CEO, Consumer Technology Association
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When I began my career, it was impolite to discuss one’s religion, sexual preference, politics or pay. Today, this cultural zone of privacy is collapsing as social mores, the Internet and even the law have shifted the playing field of personal disclosure. In many ways, we have gone from “Don’t ask, don’t tell” to “I have a right to know.” The result is a workplace culture of labels and distrust, as personal information – especially salary details – becomes everybody’s business.

There is a growing list of people whose compensation must be publicly disclosed. While some disclosure makes sense, the increasing mandates for non-profits and other professionals like doctors to publish compensation is troubling. For instance, disclosing the salaries of state university presidents and coaches can lead to serious problems. Having served on a state university board of trustees, I know that no university compensation committee wants to pay its president or coaches below the median pay. So there is a never-ending cycle of higher pay, as each board strives to provide its president with above-average compensation.

The same goes for disclosure of nonprofit executives’ pay. The law requires that the nearly 1.5 million nonprofit groups in the U.S. must disclose their federal annual tax filings. This filing (Form 990) includes top executives’ pay. Granted, as a full-time executive of a nonprofit organization, I have personally benefited from the fact that every board wants its top executives to be paid more than the average organization of a similar size. But the ongoing cycle of higher pay can put an undue burden on these organizations.

More, the IRS has expanded the list of nonprofit executives whose compensation must be disclosed. This level of transparency on compensation can create a poisonous work environment. Even without salary disclosures, every promotion has an impact on others in the organization who measure themselves against the promoted individual. With disclosures, nonprofit CEOs are now struggling to deal with well-researched requests for higher pay from executives who have found better-compensated counterparts in other organizations. It is difficult to explain that some of the comparisons are invalid based on skills, experience or other factors including different total packages or compensation philosophies.

Now, compensation disclosures are going even further. Early last month our federal government took two pay disclosure actions, which were meaningless at best and potentially confusing or harmful at worst.

First, President Obama signed an executive order barring federal contractors from penalizing employees who share salary information. By itself this order is fairly useless, as many state laws bar employers from this practice, and most employer groups and even Republicans do not oppose these laws.

As explained by liberal columnist Ruth Marcus in The Washington Post, this move is part of the demagoguery associated with efforts to pass the Paycheck Fairness Act. It’s a dishonest effort, Marcus argues, to capture women voters, despite the fact that the law already requires women and men to be paid the same amount for the same job. Conservative strategist Karl Rove agrees. In a recent Wall Street Journal commentary, he calls the administration’s tactic nothing more than a ploy to boost voter turnout among younger women in the midterm election. Barring discrimination against women is good; encouraging or even mandating salary sharing is another thing altogether, and harmful to a focused, unified workplace culture.

The Obama administration has also disclosed how much doctors in various specialties are paid under Medicare. A searchable database provides information on individual doctors, and because the data provided are incomplete and confusing, reporters have already portrayed certain specialties as excessively compensated. Yet for many doctors, like my wife who is a retina surgeon, the bulk of the Medicare money credited to them in this database is actually money they must pay to drug companies. Not only is compensation disclosure for these doctors irrelevant, it also blatantly ignores the unethical practices of drug companies, which encourage the use of the most expensive drugs. So in the name of compensation disclosure, doctors are demonized and drug company practices are ignored.

The problem is an unhealthy focus on whether some people are paid too much. But just because one person makes more money, it doesn’t mean that another person is making less. Wealth and poverty stem from different causes, and more wealth for some does not detract from wealth for others. Poverty is caused by many other factors including health, family breakdown and educational challenges.

The phenomenal success inspired by innovation in America these past 20 years is unrivaled in other countries and has made many Americans millionaires. But we are making envy a national focus and blaming successful Americans for our problems. What used to be an emblem of American success is now an excuse to demonize doctors and other hardworking, successful people simply because we can compare their salaries to our own. Forced disclosure of compensation data is often well-intentioned, but it has unintended and unhealthy consequences, not only in the workplace but also across the nation.

Gary Shapiro is president and CEO of the Consumer Electronics Association (CEA)®, the U.S. trade association representing more than 2,000 consumer electronics companies, and author of the New York Times best-selling books Ninja Innovation: The Ten Killer Strategies of the World’s Most Successful Businesses and The Comeback: How Innovation Will Restore the American Dream. His views are his own. Connect with him on Twitter: @GaryShapiro.