Question

why do firms have the right to keep salaries private?

Answer 1

Firms have right to keep salaries of their employee a secret /confidential from others .some of the reasons why salaries are kept private are as follows :

1) one of the major reason behind privacy of salaries is to avoid complaints and arguments . When salaries are open amongst employee , some employee come with the complaint that they do more work and get paid less . Arguments may arise amongst employee that who does more work and who is more capable to get higher salaries .

2) develops difference amongst employees : when salaries are open to all employee i.e each employee is aware of salary of his neighbour ,it gives rise to jealousy amongst employees . The employee who get more salaries will be degraded by the other , he might contradict on every decision of his neighbour with higher pay . Each employee will get jealous of other at same level of management . This will lead to work destruction and relations amongst employees may hamper the growth of firm . Employee may not deliver information to his neighbour or may not do his work perfectly etc .

3) may increases cost of workers : when salaries of employee are open to all . Their may be regular salary hike . When the same work is done by 5 employees , the same salaries will be paid to all .when one employees salary is to increases , all employees salary will be increase simultaneously . This increase the cost of worker . A little increase in work of employee may lead to high increase in salaries which ultimately increase cost of production and thus price and leads to decrease in profit .

4) rate of unemployment may increase : when salaries are known by all the employees , it may leads to exit of some employees who think they are paid less as compared to their neighbors . When salaries of a employee is less than his neighbour , he demands more salaries and when his demand is not fulfilled he may exit the firm and search for new job. This ultimately increase the rate of unemployment in the economy

To avoid these situations firm have right to keep employees salary a secret