Pay inequity among peers affects turnover

Workers receiving less pay than that of their same-sex and same-race co-workers respond significantly stronger than workers receiving less pay than co-workers of a different race or sex.

The study holds implications for how the systematic underpayment of women and minorities within an organization may or may not come to light. Specifically, it highlights the challenges workers face when determining whether their pay is commensurate to that of colleagues from different demographics. Without this information, employees won’t be able to discern whether they are, in fact, underpaid.

The article “How Do I Compare? The Effect of Work-Unit Demographics on Reactions to Pay Inequity,” to be published in the upcoming edition of the “ILR Review,” was authored by JR Keller, assistant professor of human resource studies in the ILR School, J. Adam Cobb of the University of Texas and Samir Nurmohamed of the Wharton School.

The authors hypothesized that reactions to pay deprivation – how much less an employee makes relative to colleagues in their same work group – are stronger when they make less than colleagues of the same sex or race, than when they make less than colleagues of a different sex or race. They then examined whether same-sex and same-race pay deprivation would be more strongly associated with voluntary turnover than other-sex and other-race pay deprivations.

To test their theory, the trio used five years of personnel records covering jobs in all function and at all levels – excluding the executive suite – at a U.S. health-services corporation, which they referred to as HealthCo.

According to the authors, “Our core argument is that individuals tend to compare themselves to and, thus, have more information about the pay of same-category others.” The results of the experiment supported this idea.

They found that when informed of the sex of their hypothetical colleagues, both male and female participants tended to compare themselves to others of the same sex. Moreover, the experimental results showed that workers earning less than their colleagues also reported lower perceptions of pay fairness, leading them to indicate they would be more likely to leave the job.

This suggests that, without full pay transparency, workers might find value in fostering relationships across race and gender. Though such relationships can be difficult to develop and sustain, they play a key role in facilitating the flow of information about pay that is central to uncovering and addressing discriminatory pay practices.

Julie Greco is a communications specialist for the ILR School.

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