When Salaries are Exposed

John Case over at Portfolio.com wrote a piece called When Salaries aren’t Secret. He throws out a hypothetical situation where a vindictive employee publishes all the salary data to the other employees. It exposes the inequalities that tend to exist. Here are some of the behaviors that HR departments demonstrate:

  • Using pay as the sole means to attract talent
  • Having a compensation system that has no input from the employees
  • Implementing a performance based compensation structure without fully educating the employees what each role is worth and the value of the accomplishments

Here are some thoughts regarding the benefits of salary exposure:

For the first bullet, pay tends to be the tool used to knock over potential candidates. It uses the cliche that everyone has their price. But if you look at Fortune magazine’s recent The 100 Best Companies to Work For article, you will see that the list varies dramatically on the pay side, but it doesn’t vary much on the fringe benefits. They all offer some sort of fun in the job. Of course fun is a hard thing to nail down, so Google leaves it to their employees to decide and mandates that each employee dedicates 20% of their time to pet projects.

The second bullet is probably more at the heart of the uneasiness surrounding pay. If employees are involved in the process it could lead to a self serving escalation of pay structures, but I don’t think it would. I think most people are fair. If you have routine periodic reviews of the compensation market by the employees and adjust appropriately (based on the third bullet) and create a system of bands to place roles into, then you’d have less churn. Why? Because expectations are set and the job becomes more about the work and less about what is fair.

Now for the bad news – bullet three. Performance based compensation must be implemented in a transparent model. If you assume everyone is already earning what their role dictates then having a performance based system makes complete sense, but say one person is earning well above the range for their role and another person is earning well below. If that is the case then a performance based system can continue to skew the equity of the employees. And then it plays back to the first bullet, for your competitors. A final influencing factor is the professional and social network of those doing the hiring. It is well known that the best way to get a job is to know someone. If that is the case then you will occasionally get people that aren’t exactly the best candidate. But what this person does offer is beyond the daily work. This person is an asset to the network. So their pay and performance might not reflect their real value to the person that hired them. To reiterate, I’m not saying this is the majority or the rule, just that it happens. So is it fair? In a way it is. Everyone has the ability to build their network out. If you benefit from it on one occasion then it was worth the effort. This is just a reality in the world of highly social and sometime irrational people.

In summary, I suggest making compensation more known to the employees. I support employees participating in the development of the ranges and I think performance based models need very clear and priced accomplishments to be effective. Finally, lets not assume we live in a world that is completely fair. 


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