Wage disclosures could lead to salary cuts, job change

Publicly disclosing personal information - such as government officials' income - may result in unintended consequences, a new US study suggests.
Using California as a case study, a researcher from Princeton University's Woodrow Wilson School of Public and International Affairs showed that city managers - typically the highest-paid city employees - saw an 8 per cent reduction in pay after their salaries were disclosed to the public.
These cuts also triggered a 75 per cent increase in the quit rate among city managers.
The findings suggest that top salaries are cut because they appear excessive, regardless of whether the reductions in pay are good policy.

Additionally, the research suggests that media exposure restrained high wages in cities where the top salaries were already disclosed.
"This paper shows that there may be unintended effects from these policies. If the public has an averse response to large salaries, regardless of whether these salaries are justified, there might be adverse consequences," said Alexandre Mas, professor of economics and public affairs and author of the paper.

Mas compared the evolution of wages between cities that had and previously had not disclosed city manager wages. Once their wages were disclosed, city managers saw an average pay cut of about 8 per cent.

While the timing of the policy coincided with the aftermath of the Great Recession, Mas shows that the reductions came not through citywide furloughs or budget cuts but from nominal pay cuts over time.
"One explanation is that city managers, in general, are overpaid, so public disclosures forces compensation to be appropriately corrected," Mas said.
"A second explanation is that the public views these salaries as excessive, regardless of whether they are warranted. This reaction, in turn, pressures the city council to lower the salaries." Mas said, adding the evidence points more towards the second explanation.