January 16, 2009 at 2:15 pm
This idea was championed by Jack Stack, who used it for his company SRC, located in Springfield, MO, and who also wrote the book "The Great Game of Business". What is interesting is that I sold SRC their first accounting package when they first went into business. I was working at a computer store in Springfield, MO when they started.
Later in my career, I worked for a company in Kansas City, MO that followed this concept 100%. All figures were published and everyone knew how the company was doing. Overall, I think the concept worked. Unfortuntely, the owner of the company ended up borrowing a lot of money, spent it unwisely, and bankrupted the company. The open bookkeeping wasn't the problem, and unfortunately, it can't prevent management (or an owner) from making bad business decisions.
Brad M. McGehee
DBA
January 16, 2009 at 3:16 pm
Judging by the activity in this thread, obviously a hot topic/button for many - definitely some interesting opinions.
I've been on both sides of this issue. In the military and government employ where salaries were based upon rank and known by all and in the private sector as an employee and business owner. The one thing I learned is that your opinion tends to be tilted towards the side of the fence where you sit.
I read a lot of replies with the word 'fair' in them... Life unfortunately, is not fair. You have an obligation to yourself to determine what is right (fair) for you - no one else. If the company is private, what I pay someone is no one's business but mine and the employee. Just because you may not see their value, does not mean it's not fair, as you are not the arbiter. Negotiation skills are valuable - learn them or not, your choice, but do not feel mistreated if you do not maximize your own value to your employer.
January 17, 2009 at 10:03 am
Not unless you have a death wish.
The problem with the disclosure of personal compensation is that it is a reflection more often than not of the imperfection of the negotiation process when it comes to matching what a company agrees pay to what an employee produces. Negotiations are conducted before the ensuing work is delivered by the employee, yet in an open book environment where everyone knows what everyone else is making, employees look at another's salary as if it were a contemporaneous reflection the value of that person's contribution to the company's goals.
Given that knowledge, people, being the creatures that they are, are less likely to ask themselves, "What can I do to make the company better," than to ask, "Why is he making more than me?" This tendency can lead to unforeseen and sometimes insidious results.
Resentment for the perceived slight of inadequate or, worse, inequitable compensation often leads employees to "adjust" their work output to bring it inline with their compensation. In the pressure cooker environment of a software company where people are often held to do-or-die schedules, the willful footdragging by one or more employees who nurse quiet grudges over compensation can create a disaster.
I have started several small companies and have been a part of the core leadership of several more, and in each instance the initial discussions about who would do what and who had the authority to do this or that turned out to be smokescreens for something very different from openness. They eventually showed themselves to be subconscious ploys designed to ensure that no one would end up with more of the pie than anyone else. In economic circles this would be called socialism, something that is fundamentally antithetical to entrepreneurial motivations behind starting a small company.
Those who start small companies need to be more honest with their partners and themselves about their true motivations when launching a new enterprise. Beneath the skin of all entrepreneurs is the idea that somehow they will build a better mousetrap and become fabulously wealthy. With that wealth some will feed the world's hungry, some will buy several Ferraris, some will hoard their wealth, and some will waste it all ending up more broke than they started. The initial objective, however, is to become wealthy, independent, self-governing. The connection between entrepreneurism and telling the world what you are paid is quite a stretch.
As governments, businesses, and families have discovered over aeons of time, some things are not intended for public view. One's salary should be on that list. If small companies REALLY want openness (and I think they really don't), they should simply give everyone the same modest salary, even the secretaries since they do essential work that everyone else hates to do, and then allocate equity positions in the company in the form of stock that can vary based on the value of their individual contributions. That would propel people to be performance-oriented and goal-motivated. Developing and delivering high quality products into customers' hands would lead to profits that translate into yearend dividends. Most law firms operate in this fashion, and software companies could take some direction in this regard.
January 18, 2009 at 10:53 am
I would say don't disclose employee Pay information whilst employees must know the financial shape of the company
my suggestion will be sum all employees annual pay and publish
January 18, 2009 at 5:25 pm
From the point of view of a company it makes sense to keep employees in the dark about other employees pay. It is much easier to pay people less than they are worth if they dont know what other people are getting. The downside is that you will have employees who may become suspicious that they arent getting paid properly, even if they are.
I have worked in both types of environments, and whilst it seems rare that all employees are happy about what they are paid, the level of trust is higher and the size of the pay issue as a whole seems smaller where there is full disclosure.
Markets work best when the players have all the information about prices (wages) available to them. Hiding this information distorts the market, and in the case of pay it nearly always distorts it in favour of the employer.
January 20, 2009 at 10:10 am
In one sense it would not matter to me if salaries/earnings were posted. Currently I am the highest paid technical person at our company and I get along with everyone.
On the other hand, lower wage earners may be unhappy with what I make which could cause some resentment. The trouble is that it is not easy to equate a salary with the work being done by a technical person. When a lower wage earner looks at my salary, do they know that while they were celebrating Christmas with their families, I was updating all of our records to meet new regulatory mandates or how I worked for 3 years without taking time off in order to keep the companies legacy database operational.
Some people excel in their careers while some people just clock in.
January 20, 2009 at 12:43 pm
This is one area very culturally different between USA and the UK. Americans admire success and want to associate with it whereas in the UK, success is mocked and people like to whisper and bitch about it by the coffee machine.
What this means is that in the USA, people will gravitate towards the higher paid person hoping to share a slice of the action - whereas in the UK, that person would be snubbed and attacked in meetings etc.
This is why Americans are much better team players than Brits. Sad to say all this as I'm a Brit myself.
January 21, 2009 at 1:21 pm
When I was consulting, I felt strongly that this info should be public...since we were basically selling our time, knowing how much everyone was getting paid was important for PMs to estimate costs and just plain made sense. I was also young and foolish at the time and I know that there were folks who were getting paid quite a bit more than I and were doing quite a bit less than I was. I think if I started my own company, I would make this public...like someone else's post indicates...if you're paying people fairly, why not publicize it? Why not give the youngsters some idea of their potential? Why not keep the old dogs on their toes and motivated to continually improve and learn more?
January 22, 2009 at 2:35 am
Keep in mind the question is not do you want your current salary disclosed, meaning a change in the environment. The question is if you started a company or went to a new place where it was open. From the start, so everyone knows what others make when they're hired.
I think it's better to be open, but from the beginning. There are definitely people that are overpaid in many companies, and there are plenty being shorted because they don't know better. This clears that up.
It also makes it easier to negotiate a salary. You can see what others do and what they make. If you do as well, you should get paid as much, regardless of your gender/race/etc.
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January 22, 2009 at 8:16 am
I don't see how revealing salaries will ever not cause resentment. But openly publishing pay bands and average pay ranges gives something for people to achieve. I work for a big FTSE company and the pay grades are:
A
B
C
D
E
admin
Now the bands of pay within each grade are widely known, so that people know how far they can expect rises in their current position. I guess that if people also knew the average they could see if they are over/under appreciated in their role (which could be good or bad).
Pay is a divisive issue, but establishing a framework takes the emotion out of the situation.
January 22, 2009 at 8:53 am
The desire for full disclosure of salaries depends on at least two unspoken assumptions. First, it is assumed that salaries are a contemporaneous barometer of the value of the work produced. Second, knowledge of others salaries make it easier to negotiate for personal increases in compensation.
The flaws in such thinking are obvious with even a minor scratching of the surface. Salaries are not contemporaneous barometers because negotiations take place before the work delivered by the employee has even begun. Once the negotiations have been completed, then the employee produces. Sometimes the employee lives up to expectations, and sometimes not. If the employee doesn't live up to management expectations, he could be fired, his position could be downgraded, or his salary could be reduced. In the meantime, however, other employees who are viewing his performance and his salary prior to the time that management takes corrective action, which might be a year hence, would conclude that if John spends much of his time chatting with co-workers, surfing the Net, and produces sloppy bug-ridden code AND gets paid more than they do, then they must be worth more money. In fact, they may be completely wrong, and the real remedy would be to have far more frequent reviews of work quality accompanied by the jeopardy of far more frequent adjustments of personal income. That would keep observed salaries more closely synchronized with observed work quality. I don't think most people would want that, but in an open environment, why not?
This last rhetorical question is stated to flush out the motivations behind the second assumption. The notion that one must pry more income out of one's employer periodically ignores some fundamental principles of economics. In order for an employer to be in the position to be "pryable," the business must be growing in a growing market. Revenues must be rising, not flat, or worse, declining.
More importantly, the idea that there is yet more that can be extracted from an employer in terms of salary belies the belief that the employer is avaricious, intent on paying someone less than he or she is worth. The fact is that in a market where top skills are required to keep companies competitive, most employees are paid at or very near the maximum that the company can afford. If there is avarice, then let's at least be candid enough to admit that it is equally spread among employees and management. In that case, yes, it is possible that one will always be engaged in an economic cat-and-mouse game, but if that is the case, why on earth would one want everyone else to know what he or she is paid?
In addition to paying for salaries, companies have to pay for office space, furnishings, telephones, computers, heat, light, insurance, attornies, parking, and advertising. They have to create reserves to absorb losses due to unanticipated results of marketing efforts and to pay all the above plus salaries at times when revenues decline.
Lest I forget, they also have to pay taxes, and lots of them. I know that some of the readers are from the UK, so they may not understand the perverse tax system that exists in the USA. Employers here have to pay as much as 40% of their annual profits in taxes PLUS expensive additional taxes that are designed to cover employees medical costs, workman's compensation programs, and insurance. Often they are required by the states to carry a blanket bond that covers any and all possible forms of corporate misconduct. In cases where an employee is injured and makes a claim under the workman's compensation program, the cost of that claim enlarges the companies premiums for at least three years AFTER the claim is made even if the employee has left the company. In California where I reside, the cost of workman's compensation premiums often exceeds the gross income of the small companies that are required to purchase it.
Add to that the expense of having to comply with local regulations. In Los Angeles, for instance, it is illegal for a business to operate within its boundaries unless it has created and filed a business continuation plan in the event of a natural disaster (read that as "earthquake"). Filing that plan implies in the case of software companies that you must undertake binding contracts with out of state service providers to house corporate data. That's a good idea in general, but how many small startups that espouse openness of salaries ACTUALLY do it?
Starting a business is cheap and risky. Staying in business is very expensive and still risky. Openness of salaries is a nice philosophical concept, but at the root of it is the belief that management is getting rich on the backs of highly skilled, underpaid day laborers. If employees were willing to accept the personal risks that entrepreneurs must accept to start a business which include mortgaging your house and other investments, then perhaps openness among the risktakers would make sense. Openness of salaries among all, however, is not sensible or wise since not all participate equally in the risks.
January 22, 2009 at 10:15 am
I believe in the free market system because there is no government or people perfect enough to manage a legislated "equal pay" system. My employability is my own incorporatable asset, and I have the right to take bids.
In a perfect world everyone would be paid identically top to bottom, as all are as valuable in the chain.
But this is not a perfect world, and I don't want a communist/socialist government nannying my right to negotiate my sellability.
January 22, 2009 at 10:34 am
dphillips (1/22/2009)
I believe in the free market system because there is no government or people perfect enough to manage a legislated "equal pay" system. My employability is my own incorporatable asset, and I have the right to take bids.In a perfect world everyone would be paid identically top to bottom, as all are as valuable in the chain.
But this is not a perfect world, and I don't want a communist/socialist government nannying my right to negotiate my sellability.
Although I generally favor free market as well I think it is naive to say that everyone in the chain is equally valuable, or that in a perfect world everyone would be paid equally. Without the incentive of increased income there isn't nearly as much incentive for people to spend money to become highly trained or to take on a job that is physically exhausting etc.
Equal pay for equal work (which I advocate) is very different from Equal pay for Non-Equal work. There is a very big difference between having two equally qualified DBAs making 30% different salaries because one is male and the other is female and between having the janitor make less money than the DBA.
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Anye Mercy
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January 22, 2009 at 11:25 am
Anye Mercy (1/22/2009)
... I think it is naive to say that everyone in the chain is equally valuable, or that in a perfect world everyone would be paid equally. Without the incentive of increased income there isn't nearly as much incentive for people to spend money to become highly trained or to take on a job that is physically exhausting etc.
Please note that when I said "perfect world" I do mean the people would be perfect, and all would perform their job fully and well, without care for remuneration because it was the right thing to do, and all had more than enough "substance". The janitor would be just as valuable as the DBA or the CEO, every person performing an important role.
But that is the whole crux of the topic; we do not live in a perfect world. I therefore fully agree with you in saying that incentive to do more, and build bigger/better/faster is a necessary and good feature, and not a bug.
I also agree that gender should not matter now - and should be defended.
January 22, 2009 at 12:30 pm
"...the idea that there is yet more that can be extracted from an employer in terms of salary belies the belief that the employer is avaricious, intent on paying someone less than he or she is worth. The fact is that in a market where top skills are required to keep companies competitive, most employees are paid at or very near the maximum that the company can afford."
In my opinion, this is disputable.
In Finance 101 we are taught that management's job is to maximize weath for the owners. Paying employees near the maximum they can afford when they're able to negotiate a lower amount because of lower market rates and/or negotiating strength would, it can be argued, violate this rule.
On the other hand, in Economics 101 we are taught that transparency is fundamental to a functioning free enterprise system.
Therefore, what's best or necessary in the short run for an individual employer is not necessarily what's best in the long run for the market as a whole. At the time of hire and during performance reviews, both employers and employees should be negotiating from a position of knowledge, transparency and full disclosure. That's capitalism.
I say disclose all compensation. If an employer can't justify their compensation structure to potential and current employees, then let the free market reign.
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