Study: Salary Transparency Among Bosses Increases Employee Productivity

     As part of the work we do with dental practices, the dental attorneys at Nardone Limited are always looking at ways to improve relationships between owning doctors and their employees.  We all recognize the value that our talent (i.e., our employees) brings to our offices daily.  What we also do, however, is struggle with making sure that we continue to maintain those relationships, improve those relationships, and always focus on those relationships.  Therefore, any time that we see an interesting study or article, we like to discuss them and let everyone know about them.

     Recently, the Wall Street Journal reported on a study, published by the National Bureau of Economic Research, which discussed the employees’ knowledge and understanding of compensation of their bosses.  Professors Zoë Cullen and Dr. Ricardo Perez-Truglia conducted this study using a sample size of 2,060 employees from a private commercial bank in Asia.  The researchers found that employees who believe their co-workers get paid more than they do are less productive, overall.  This is not necessarily surprising. The surprising part of the research results, however, was the fact that the same employees worked harder when they found out that their bosses made more than the employees expected.

Nardone Limited Comment: Interestingly, most employees underestimated their bosses’ salaries. 

     One explanation for the work productivity results is the notion that: you too, as the current employee, could someday earn compensation near or close to that of your boss. So, while many bosses may see salary details as confidential, it turns out that those who are transparent about their compensation may boost employee morale, and ultimately their productivity.

Nardone Limited Recommendations

     I am not sure that sharing each dental practice owner’s compensation and profit from the dental practice will increase employee productivity. But, this research does highlight the fact that there is a correlation between an employee’s work productivity with future expectations of compensation. Thus, we absolutely should be focused in on subjective bonus incentive compensation plans, based upon everyone’s actual performance. Although we are all about team performance, standard lock-step bonuses based upon team performance, versus individual performance, are simply not as attractive. We hear others talk about the team approach all the time. And, while it sounds good, and academia likes the idea of the team approach and collaboration on projects that may impact compensation, it all comes back to individual performance. So, keep that in mind, and incentivize employees based upon their actual work product and productivity.

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     The dental practice attorneys at Nardone Limited want to ensure our clients make informed decisions about how to organize their dental practice.  Nardone Limited specializes in representing dentists in such diverse areas as: (i) dental practice business succession planning; (ii) dental practice purchases and sales; (iii) dental board matters; (iv) real estate matters, including lease agreements and commercial real estate purchases; and (v) employment-related matters.  For more information, contact Nardone Limited today.