"John will ask why Sandy is making more. The truth is that Sandy is more productive, and saying that to John will lead to friction. John will either need to make more money (which will piss off Sandy), or Sandy will need to get promoted to the same level as her manager (which will piss off her manager because what is she going to do now?). So who do we piss off? Wait, why do we need to piss off anyone - let's just keep the salaries private."
Giving John such an explanation for why his salary is set as it is and what he can do to get a raise is not a problem for an employer. It's about the best possible case for them really.
The real problem for companies is when the explanation comes down to "Sandy negotiated harder than you", "Sandy got a higher offer from a competitor so we had to match it to keep her", "we're paying you significantly under the market rate and are hoping you don't notice or aren't too bothered by it", etc.
By not paying equivalent wages the company opens itself up to lawsuits. You can and should ask your peers what they make. This is totally legal and encouraged.
> By not paying equivalent wages the company opens itself up to lawsuits.
Depending on what you mean by "equivalent", yes it could make some claims of discrimination based on race/sex/etc slightly harder to defend against. It does not "open" a company to lawsuits as opposed to being closed to suits by paying equivalent wages. It is one of many many things that could be a factor in such cases. And a lot of companies decide it is worthwhile to do despite that.
> You can and should ask your peers what they make. This is totally legal and encouraged.
It's not encouraged by many companies, and some try to discourage it including by trying to get employees to agree not to, whether or not it's legal.
If they ask why they get paid less and it's because they perform less and they understand that, it might hurt their feelings but at least most well adjusted people can accept it and even better work to improve themselves.
What is much harder to accept, and builds resentment and apathy, is something that feels arbitrary or unjust.
There are co-workers that everyone (including the person themself) know are better or worse than others on the team. The sticky points arise when two people who view reasonably themselves as peers get ranked differently during performance reviews. Then it's right back to arbitrary and (possibly) unjust decisions by the boss.
Perhaps the more productive worker is more productive because their work is not high-visibility. Maybe it's the arbitrary luck of having been assigned a more successful project.
That is not at all what that law is saying. You can absolutely pay differently based on "bona fide factors" such as experience and job performance. Do you really think everyone with the title "software engineer" at a huge company varying from 0-20 YOE is going to be paid the same? No, they will be positioned differently within a salary band based on experience and job performance. You have clearly never managed a large team or organization and done comp planning for them.
People can reasonably disagree on what the law means. Just because comp planning is done one way or another doesn't mean it is legal. It also doesn't mean that what you think are "bona fide" factors are actually valid.
You deeply misunderstand employment law if you think it prohibits people at the same level from being paid different amounts.
It's illegal to pay differently on the basis of sex, race, or other protected classes. It's perfectly legal to pay differently on the basis of performance or anything that isn't a protected class.
The vast, vast majority of workplaces in America pay people at the same level different amounts.
Why would acknowledging that another employee is more productive lead to friction? "Sandy is more productive than you, if your goal is to earn as much, here's where you can improve...".
Like if you're able to describe how Sandy is more valuable, you can describe that to John, and he can emulate it, and everybody wins.
The problems are that it's subjective, so will lead to arguing all the time. And the truth is often closer to, Sandy negotiated a higher salary when she came in,maybe because she made more at her previous job.
But the biggest problem is that if you wanted this "fixed", you can only raise salaries of people who make too little. Lowering salaries of people who make too much is usually a legal impossibility.
So the effect will be that you risk ending up overpaying everybody instead of only an outlier now and then.
It doesn’t lead to “arguing all the time” it leads to “employees are able to negotiate more easily with better information”. If you pay so unfairly that pay transparency leads to your business imploding maybe that should be cause for thought.
Salary changes come with a new contract IME (unless the changes are in the bonus compensation). You can't force someone to sign a new contract (you can probably make them a sign or leave offer, but you can't make them sign) so you can't lower someone's base salary.
There is no need to have a contract. Many small businesses just hire people and give them a piece of paper saying what they will get or orally tell them how much they will get.
In the event there is a contract, unless the contract specifies compensation for terminating employment, the employer can always just terminate the employee for the reason of “this employee is no longer worth $x per hour/year to us”. Barring any other union agreements of course.
> John will ask why Sandy is making more. The truth is that Sandy is more productive
These secret decisions are not commonly rational like that. Maybe Sandy keeps quiet when they know the boss is wrong and leaves it to John to speak up and stop the whole thing going over the cliff edge.
The system you describe seems to be rigged against the employee. Employees will try to optimize their financial situation much like the company does, and knowing one's own value to the company and the industry as a whole is an important puzzle piece.
This system is doomed long-term if it only works because of information imbalance, since ways will be found around that (levels.fyi, random walk across employers, ...).
This is not true by fiat or by experience. In ten years working at a company with 10-20 coworkers, we rarely talked salary; only in the very end of my time there and during covid were people coming out a little bit more about it and only in tight knit groups.
What makes you think people always discuss salary? Because it seems rational from a negotiating standpoint?
Of course in tight knit groups. But one tight knit group shares with another and before you know it, it has spread through the network. Happens more often than you think, even more so with younger people.
What about listed salary range is $180-250k and you get an offer for $210k. You hold your ground because you think you’re with the $250k. They disagree and let you walk away.
You avoided working for less than you believe you're worth, and the company hasn't employed someone on more than they want to pay. These are good outcomes.
In other words: "we can't be transparent, it might make us look bad."