Does public sector salary disclosure raise or lower salaries?

I don't know.

Ontario's salary disclosure legislation, which requires that all salaries over $100,000 per year be made publicly available, was introduced by the Progressive Conservative government of Premier Mike Harris. That government had a somewhat unenthusiastic attitude towards MUSH (municipalities, universities, schools and hospitals) and the public service. The aim of the legislation was, presumably, to build support for policies to restrict and limit public sector salaries, and put downwards pressure on salary growth.

Yet no one scrutinizes Ontario's public sector salary disclosure document more closely than public sector employees themselves. We look for salary anomalies, something that will help our case before the salary rationalization committee. We look to see if our salaries are competitive with those of people in other institutions, and if they're not, we complain. To the extent that salary disclosure encourages levelling up, it would be expected to increase public sector salary growth.

In other contexts, such as CEO pay, there is a perception that disclosure of executive compensation has led to salary growth through the Lake Woebegone effect: every CEO wants a better-than-average pay cheque.  (I buy that story.) However, as this article suggests, it is not easy to find clear-cut evidence that disclosure per se is behind the explosion of executive salaries.  

Likewise, it not easy to find a rigorous estimate of the impacts of the Ontario salary disclosure legislation on public sector salaries, although this paper suggests that salary disclosure has not dampened salary growth.

I did find one paper that suggests that university employees who discover, through salary disclosure, that they earn less than their colleagues respond by getting angry and/or working less. I believe it. (That's the thing about academic life - one can't do much about ones salary, but one can do a lot to change ones wage rate).

But other than making some people feel underpaid and resentful, has salary disclosure had much impact? I just don't know.

Comments

[Determinant]

MUSH and direct government Public Services themselves are two very different sectors in one key respect: Public Services are linked and have common rates of pay and employment practices; MUSH institutions have much more independence and treat their executives much more individually.

In the Public Service of Canada, Executives proper (those in the EX group) have their own salary grid http://www.tbs-sct.gc.ca/gui/eg11-eng.asp. They also have a standardized pension and benefit package. Of course practices vary between the Feds and each province as each is master of their own house.

Therefore direct Public Service employees have less bargaining power, for better or for worse. Government tends to strongly favour standardized compensation norms with upper and lower limits because the money for these arrangements has to be granted upon by Parliament or the Legislature through the budget process. Public Service executives have much less control of the income side of their department than the private sector does.

[RPLong]

I am going to say, yes, they lower salaries. My reasoning is as follows:

1 - When all salaries are categorized, standardized, and published, opportunities to negotiate an outlier salary are diminished if not thoroughly eliminated.

2 - I have worked in some poorly managed companies, and in those companies, whenever employees start trying to negotiate (individually) for salary increases, the company adopts a categorize, standardize, and publish strategy.

Nothing kills outliers quite like a corporate memo that states "All employees in your position shall make between $X and $Y per annum."

[Frances Woolley]

RP "they lower salaries"

"the company adopts a categorize, standardize, and publish strategy" - I agree with the first two - categorize and standardize - but not the last one. Can you name for me a company that makes individual salaries public? If you can't, how do you know that those outliers don't exist? Can you point to me one company in a non-union environment that publishes its salary scale? I can't think of any.

If publicity really did lower salaries, don't you think private sector companies would be falling over themselves to publicize salaries? They aren't.

Universities are a bit like sports franchises in that their ability to attract customers is a function of their star players. Universities are ranked by their research output/research profile, and there are a limited number of "stars" who are consistently able to produce high quality, interesting research and get it into the top journals or write best selling books about it. A university attempting to establish or maintain its research profile will try to buy in stars from elsewhere and/or pay a premium to its stars to get them to stay (Richard Florida at U of T makes a lot of money).

Academics typically hate doing administration, also, so there is a market in people who are competent and willing administrators.

In any university department, there are a few people who are what we call "mobile" - which means they have CVs or admin skills that other universities would be prepared to pay for, are consistently productive, aren't tied down by their spouse's job, and aren't total jerks. Salary disclosure allows universities to identify underpaid people and attempt to lure them away (that happened with one of my junior colleagues recently), it also allows people to check how competitive their salary offers are. Both of these factors would tend to increase salaries.

[RPLong]

Obviously, I can't comment on working in a university environment. And when I say "public," what I really mean is "distributed internally among all employees." I can think of many companies that do that. Some of them are unionized, and some aren't.

The way it works, in my experience, is I walk into a job interview and part of the discussion is salary. If I ask for too much, the response is, "That is more than we usually give to employees in this position, but let me see what I can do." Then they make a counter-offer in the upper-end of their grid. They won't go beyond the grid. I've only seen it once and within 12 months the manager was telling everyone that they would never, ever do that again.

That's just my experience, though. I'm extrapolating based on what I've seen, not from any a priori theory. Certainly there are good companies out there that operate better.

[Jack P.]

If wages are only downward-sticky (as evidence suggests), publicly available salary information is more likely to be used to raise rather than lower wages.

My guess is the political aim was to get widespread public support to lower academic salaries, but most faculty do not make outrageous incomes. I don't think Jane Taxpayer will be up at arms about the professor earning $70,000 a year.

However, I believe there will be pressure not to hire superstar academics, who will then go to the USA. The first effect (ratcheting) will most likely dominate the second (superstar exodus), with the net outcome being higher expenditures on professor salaries.

[Frances Woolley]

RP -Interesting. Individual salaries or the salary grid? Two different things

[RPLong]

Just the grid, in my experience. It would indeed be a much different thing to publish actual employee salaries.

[Stephen]

I work in Govt. I have no problem with our salaries being made public. Where I live - it is, except for management. If bus drivers have to show their salaries so should city managers.

The one thing about showing salaries of a specific amount (like $100,000+) is the whole forgetting about inflation. $100,000 12 years ago is like $77,000 today.

[Frances Woolley]

Stephen, "forgetting about inflation"

I think that's a feature, not a bug. In other words, the legislation was deliberately couched in terms of a nominal limit so that more and more salaries would be revealed over time.

[Frances Woolley]

Stephen in BC the disclosure applies to salaries over $75,000, since their legislation is older.

[Stephen]

That is the one thing being a bureaucrat which is tough - politicians always push public anger on to us. I can understand pushing attention to our unions (they're more a negative than a positive) but we bureaucrats do the actual work! A politician who was a nurse, bus driver, a small business owner, or a lawyer usually won't understand how their ministry actually works. Typically they never worked in that field. They depend on us. Not my fault they hire too many of us. But this attacking of our salaries can get to be too much.

I have no problems with making all of our salaries public. Just do all of them! None of this politicking by picking a number. All or nothing. It's too easy for most people to not realize the effect of even 2% inflation over a decade. All or nothing.