What do you think about an open Salary policy, total transparency in compensation at a company that is less than 40 people, is this a good idea? Or a recipe for disaster?
Clarification added 5 months ago:
It should go without saying, that if you implement transparent salary policies, you MUST have clearly defined salary criteria, must be prepared to deal with and adjust observed inequalities, and be able to defend all compensation decisions.
Good Answers (6)
I think it's a good idea in any company. Secrecy encourages rumour, gossip and misinformation. Blow it away. There should be a presumption of openness, not of secrecy. Secrecy belongs to the old command and control environment of the traditional hierarchy.
Salary is a sacred cow when it comes to secrecy. Kill it. Publish the salary information. It stops all the salary rumour and gossip, and gives staff useful information. It shows them clearly who is perceived as successful. It is a clear way for management to indicate who the successful role models are. It will give staff some aspirations in terms of their earnings potential.
Pusblishing the salary information puts pressure on all the right people. Individuals who achieve a big salary increase will be under real pressure to show that they are worth it. Senior management will have to show that they are worth it to the most demanding critics: their teams. Management will be under pressure to get the results right.
Publishing the salary data also brings true market forces into play. The competition and headhunters may find out. If they can poach the lower paid staff, no problem - provided management have rightly judged the capability of the lower paid staff. If the higher paid staff are being poached, that's a signal that management are underpaying the key talent.
Quite typical pattern of responses on this question... believe it or not, you are not the first to ask that question and Iøm surprised to see how many people just air their personal opinon without stating reasons or underlying thoughts... however, the question can be abstracted very easily... are you for an open doctrine or a closed one !?
Eventually you can apply the paradigms to other elements as well, do you think its a constructive action to expose peoples ineffectiveness and incompetence or do you think its bad... personally I tend to think that exposing weakness eventually is an invite for improvement so I would vote YES for opennes on that question... when applying this response to your question, the response would be to point to the potential outcomes of such an action (salary transparency)... the proponents tend to argue it will get rid of gossip and the like, however the people arguing against openness tend not to support their opinion with arguments, merely statements of perception. Nevertheless, as in any decision in life there are benefits and downsides to either outcome... eventually competent and capable management will be capable of carrying both models whereas an ignorant and incompetent management will be able to carry neither...
Paul E
Program Manager at RTA
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Definitely not. You would need a very unique company culture to be able to get away with doing this. In a very large company it might be OK, as the criteria for each role would be well understood. The government is a good example of this: it is generally understood what each person's salary would be, based on their job classification.
In a small company it would be disastrous. Typically everyone is job sharing because there are too many things to do and not enough people. The criteria for a particular salary could be based on a combination of length of tenure, seniority, job role and responsibilities and how well you know the owner/CEO. By making the salaries visible to everyone, there would be endless questions, criticism and debate about why staff that appear to be similar in some of these criteria are not getting the same salary. In a large company the criteria are more rigid and well understood.
Please don't do it. It's a recipe for disaster!
If the salaries are competitive and wage scales clearly defined it might be a cool idea.
It seems to me there are so many ways to get an imperfect and possibly infuriating picture of what your colleagues earn that a transparency policy might be preferable. Plenty of websites offer accurate salary info for specific companies and positions & in some countries, Sweden for example, tax returns are public so you can essentially checkout what the guy in the cubicle next to you is making.
It would be interesting to see how an open policy would effect all the speculation and snooping that exists when salaries are obscured.
Josh
Links:
How many secrets can you keep in an organization that small? Sooner or later, someone's going to walk past a screen showing something it shouldn't, pick up a print they weren't supposed to see, pour you that one drink too many at a company event...
Joel Spolsky has some smart things to say on the subject:
http://www.inc.com/magazine/20090401/how-hard-could-it-be-employees-negotiate-pay-raises.html?partner=fogcreek
Marina M
Helping small businesses & Type-A personalities streamline processes and spend more time on what's really important.
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What is your goal in having an open salary policy?
I generally advise against this. A salary level is really the employee's private information, as its a numeric representation of their skills and the value of their contribution; it should not be up to the employer to decide whether or not to post this information on the break room refrigerator. In a perfect world this would provide positive peer pressure, but in most real-world situations it causes shame on the part of people making less and that in turn seeds jealousy.
If your goal is salary transparency, then change the way you do salaries. Provide a very low base salary to everyone and then attach monetary to every milestone (right down to filing a weekly status report). Couple this with flexible working arrangements, and let the go-getters work overtime and the parents work just enough to pay the mortgage (and spend the rest of the time with their kids). I've seen this cause miraculous, positive changes in workforces of varying sizes; employees are happier, missed deadlines are a thing of the past, and pay is directly tied to the employee's contribution to the business's bottom line, which is what compensation is really all about.
More Answers (31)
Dean E
Operations/Logistics Program Manager at Siemens Government Services
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Don't do it.
Craig R
Expert User Interface Designer, Human Factors Engineer, Modeling and Simulation
I think this would not be good. It would foster lots of unproductive energies focused around how much money this person is making given their output and value to the company or how I am only making X and I do so much more than employee Y and employee Y is making more than me.
Good question though! Lets stay in touch!
I like it. It is fair that you get rewarded for exactly how good you are / how important you are to the company.
Sheilah E
Owner, ★SME Management:.......... Business Management and Accounting Consultant
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Don't do it. You will live to regret it and once the damage is done it cannot be undone.
Sheilah
I think Americans would be against whereas Dutchies or Danes are perfectly fine with it.
In bigger companies (or institutes) in Holland we have scale systems where it's perfectly open on what scale is earning how much money. The scales are based on experience, education, and skills.
I think it's a potential disaster unless everyone makes the same.
Clarification added 5 months ago:
There is one benefit I can see: it eliminates gender based pay inequities
only survive with opacity
Mike D
Owner at MJD Business Advice LLC; Senior Business Consultant @ Collin Small Business Development Center
I recommend you do not do it. But that being said you can have published salary ranges within job descriptions so people can see what they can aspire to with promotions or within a pay for performance salary increase process.
I would suggest dont do it - but make the genuine company profit figure known and pay a bonus if this exceeds an amount - the bonus being an equal amount for everyone - not a percentage of wage - this will mean much more to the lower paid and increase productivity - but correct honest data is essential and no changing the goal posts as the scheme develops
I agree with the majority here, it's generally a bad idea - especially if you are in a company where the salary spread is large.
Don't do it, first reaction. 2nd reaction - a question, why do you want to do it? Weighing the pros and cons, I believe you will find that some confidentiality is good. You would have to find a really, really good reason, which are few, but there are. Best of Luck!
If the management is Union, then that would be expected. However since management is seldom unionized, open salary generally leads to similar raises based on inflation to prevent employee jealousy. It would take a strong manager to give merit raises to the deserving employee and deal with the complaints from the ones that didn't get a merit raise. The ones that didn't get the raise will provide even less work effort than previous -- the reason why he didn't get a merit raise in the first place. They seldom leave the company but the good employee will – leaving the company with all average employees and marginal productivity.
Open salary raises just leads to level pay based only on time served. Just like the union shops for union labor-less productive, loyalty, etc. But what would you expect from a socialist state. Re-distribution of salary is just one part of re-distribution of wealth.
If you're an employee - good idea
If you're an employer - bad idea
Leonid L
Software Engineer at Linedata Services
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You are reinventing a ruty wheel. Europe does / did it, and look where it ended up. People get very jealous of others' salary, nt so much because they need an extra 2k, but because it implicitly ranks them according to value. You want to make everyone feel special, by giving them a salary increase in person and separately, with a fatherly expression on your face. One time I moved to a new apartment and decided to pretty it up with new kitchen knifes, water filter, utensils, pand and pots, cool shower head, etc. I was making an investment in a nice (but affordable - I got lucky) appartment; I'd cut down on many other expenses. For convinience sake I was ordering things to work. Many of my coworkers assumed that I was making more $$ than them based on my purchases and hinted at it. I chuckled and ignored, but it was a serious matter.
In sum, DO NOT DO IT! People are more predictable (greedy, envious) than you think. The beauty of capitalism and constitution, is that both systems supposedly work even when participating people are imperfect.
This is a bad idea. Each person in a company will need to be adequately compensated for their abilities. If you have 2 people with the same job title and one is more productive (gets paid more) the other will see that and harbor animosity. This is only one example of a specific job title. This does not even get into how different positions in your company will view their own value in relation to other positions. Good thought...bad in practice. Hope this helps!
If you work in the former USSR then OK. If not, it would be a big mistake.
Very out of box think and approach. However, The company has to be very careful about the compensation structure and making sure it is sending the correct message.
It is an idea carrys fairly high potential execution risk.
My wife is working in a consulting company, where they have 4 salary levels, based on seniority, not depending on gender. This gives total transparency, and you do not have to bother about salaries. Even danish butcheries have something like it, everybody is equal no matter nationality. Polish, danish, turkish.
I like the idea, and for the employee, salary is never a motivator, only avoids dissatisfaction. To use salary as motivator is only a slippery slope. But then I'm half danish, half dutch ;-)
They say "information wants to be free," but who are they again? And how do they know what my information wants? Have they been cavorting with my information?! Might be a case of perfect competition = market failure. Or at least workplace failure.
On the other hand, I suggest an Open Religious Affiliation Policy. Let's find out once and for all who's got the most perfessional work ethic!
Very bad idea. Years ago, my wife accepted a position at a company with a similar policy. On her first day, she was confronted by another employee who was quiting because she (my wife) was coming in at higher salary than her. Created a very negative impression and atmosphere, my wife left shortly afterwards.
This has been done- I wish I could remember the company- I read about it 5 years ago. It was successful there. But- then again- the definition of successful depends on who you talk to. Unfortunately - people are fickle and self serving- and this could encourage backstabbing etc. When a company pits its employees against each other for survival of the fittest- noone is best served, despite management books that encourage this.
All they are doing is encouraging heavy handed politics- and this gives power to the ones with lower ethics and usually- lower talent as well.
If you try this- let us know how it goes.
Gregory L. C
Representing great companies to great companies
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BAD IDEA! Salaries should be based on performance not formula. Sally works harder than Jim and gets the same amount? Sally nor Jim need that information. It makes things worse.
Unless everyone is making the same, it probably isn't a good idea. This most likely breed a lot of animosity within the team unless everyone is making the exact same amount based on job function.
Compensation is between the company and the employee. It is a recipe for disaster because as soon as somebody finds out that they are making less money than another employee, it begins a huge conflict. Now a contractor, my paperwork usually states that I will not discuss compensation with anyone else. In the past, any time I "shared" that information with a "buddy", someone was upset because they believed that they deserved more.
I'm guessing it could swing both ways, depending upon other factors. For instance, if the higher-ups are making absurd incomes that are not commensurate with their labor - and everyone knows every detail about it - this may cause some morale problems. However, if compensation is fair from bottom to top, transparency would likely become a positive factor, engendering trust and the good morale that goes along with that trust.
