Equal pay pushes up productivity

Finding people in similar jobs are higher paid seriously shatters job satisfaction, wellbeing and productivity, with those in top jobs feeling the pain the most.

That’s the message from a study showing staff rate themselves against same rank colleagues, and firms that pay the same job differently shoot themselves in the foot.

Prof Ozbiligin et al. explore whether employees compare their pay to the pay of others in a similarly prestigious occupation and, if so, whether this comparison has a negative impact on pay satisfaction.

Using an experimental vignette methodology, Study 1 found that people are more inclined to compare with others from a similar or identical occupation and that comparison negatively impacts pay satisfaction. This comparison and its negative effect is particularly strong in high-prestige occupations.

Based on survey data, Study 2 also showed that the average pay of others in occupations of similar prestige is negatively correlated with employees’ pay satisfaction. This negative correlation was also stronger in higher-prestige occupations. Their analysis highlights the importance of occupational prestige as a main factor influencing pay comparison.

BBC journalist Carrie Gracie, who quit as China editor, accusing it of breaking equality law, is a textbook case of what the research says happens workplace-wide.

“When you realise a colleague is higher paid than you, your job satisfaction levels drop”, says Brunel University London’s Prof Mustafa Ozbilgin. “And that effects productivity, health and overall organisational performance.”

The organisational behaviour expert worked with specialists in workplace wellbeing, psychology and pay to analyse how comparing pay effects UK workers and business.  

Carrie Gracie’s resignation last week backs their findings, which Prof Ozbilgin says show its time for tougher Government regulation and for employers to take responsibility.

“We are on the cusp of a culture change,” he said. “Without brave actions like Carrie’s, which take courage, there can’t be progress.”

High-fliers like her, in more prestigious well-paid roles feel most wronged when someone at a similar level earns more, researchers found. Men are less likely to be satisfied than women, married people less satisfied than singles and people new to the job unhappier than people who’ve been there longer, the study showed.

Since researchers link job satisfaction to performance, productivity, turnover and absenteeism, secrecy and inequality surrounding pay brings strong implications for human resources. And with compensation payouts for lost bonuses and earnings running into millions, the cost to business can be vast.

“Job satisfaction can affect all aspects of wellbeing,” says Prof Ozbilgin. “It can trigger psychological disorders, physical symptoms and lead to what’s called exit behaviour which happens a lot in the UK where people are quick to shift jobs if they feel undervalued or unfairly criticised.”

When staff feel ill-treated, they start doing less, the report says. They might stop saying hello to colleagues, pulling their weight with teamwork or putting in the unpaid extra hours they once did.

As well as calling for tighter government controls, Prof Ozbilgin wants organisations to put equal numbers of women and minorities on remuneration panels:

“Unequal pay and lack of transparency are bad business. It damages individual and organisational wellbeing.”

Dr Wanda Wyporska, Executive Director of The Equality Trust said:

“This research illustrates the growing importance of transparency in pay and pay structures. Many organisations already have robust pay structures where everyone knows the pay grades and the competencies required. Of course that does not eliminate discrimination in terms of progression and pay, nor does equal pay avoid a gender pay gap.

“Pay inequality is damaging the workplace and as Professor Ozbilgin and his team have found, it damages productivity. As, we know, in countries with high levels of inequality, such as the UK, we see higher levels of mental and physical ill health, and lower levels of trust, which translate into issues in the workplace. We agree that more ethnic minorities and women ought to be on  remuneration committees, but they also need to be in the executive and senior management roles.”

Pay referents and satisfaction with pay: Does occupational proximity matter? is published by the British Journal of Management.

Prof Ozbilgin teaches at Brunel Business School. His co-authors are employee well-being specialist, Yannis Georgellis at Kent Business School, University of Kent, workplace psychologist, Stephen M. Garcia at University of Michigan and University of Brighton’s Andros Gregoriou who specialises in pay