This is a guest post from Jurgen Appelo who is the author of “#Workout: Games, Tools & Practices to Engage People, Improve Work, and Delight Clients (Management 3.0) and is one of the top top leadership and management experts in the world according to INC. I asked him to share his thoughts on a topic that I find to be quite interesting, transparent compensation.

Enter Jurgen…

If only things were always transparent! It took me years of building a reputation as a technical leader and a track record as a development manager before I was allowed to take over responsibility for the project management department in our company, only to discover that during all that time, the project managers had been paid more than the software developers.XZ

While researching literature on the topics of compensation plans and salary structures, I came across one article that contained strong advice for human resource managers to “keep the salary ranges in the strictest confidence”. Yes, that makes total sense if you don’t want anyone to find out they’re being screwed! Fortunately, not all companies follow this advice. In fact, depending on where you live, demanding confidentiality probably isn’t even legal. [Meyer, “Appeals Court Says Employees Can Openly Discuss Wages”]

We live in a different age now. With the rise of the Internet and social networks, more and more people have become accustomed to the idea of sharing (almost) everything about themselves. On Twitter, we let people know where we are; on Instagram, we show what we eat; on Amazon, we publish what we read; and with AirBNB, we even rent out our homes to complete strangers. Why should we make a fuss about people finding out how much we earn? [Gascoigne, “Open Salaries at Buffer”]

Be Transparent

I see many companies switching to transparency of finances and publication of their compensation plans. Research confirms that pay secrecy only hurts a company’s culture and results in negative morale, decreased performance, and higher turnover. [Belogolovsky and Bamberger, “Secret Salaries Hurt Worker Performance”] Therefore, defaulting to transparency and making everything publicly available, perhaps even to outsiders, can be a smart move. Yes, everyone will be able to figure out what everyone else earns. Why is that a problem? A transparency policy is a good thing because it forces management to be fair to everyone. [Griswold, “At Whole Foods, Employees Can Look Up Other Employees’ Salaries”] When a few employees don’t like that, the problem resides more likely with personal attitudes or with unfair salaries than with the transparency policy itself. A ban on secrecy has a tendency to scare away people with a bad attitude, which helps to reinforce a good culture instead of feeding a poisonous one. [Elmer, “After Disclosing Employee Salaries”]

No Hidden Agendas

Will there be discussions when you open the books on salaries? Of course there will! [Nisen, “Why You Should Reveal Everyone’s Salaries”; Silverman, “This Is What Your Co-Worker Is Paid”] But these discussions will reveal the problems that are already in the system; and by dealing with them, you stop them from festering and poisoning your company’s culture. Of course, it requires that you have a fair compensation plan in place that is able to explain what everyone’s salary is. When nobody can easily explain it, that’s a good reason not to show it!

When you announce your plan for a transparency policy and people respond with alarm and even threaten to quit their jobs, I would just let them go. I would even open the doors for them. Thank you and goodbye! At the same time, I would leave the doors open for the many people outside who learn about the new fair compensation policy and want to get in.

The move toward transparent compensation plans is a global trend. Some even say companies don’t really have a choice. [Silverman, “This Is What Your Co-Worker Is Paid”] Obviously, I don’t mean to say that you should start posting everyone’s individual salaries on your company’s public website tomorrow. Experiment, take small steps, and think about where you want to go. Use your compensation plan to reward people for the right behaviors. That means no politics, no secrecy, and no hidden agendas.

Sources:

Belogolovsky, E. and P. Bamberger. “Secret Salaries Hurt Worker Performance, Increase Top-Talent Turnover” <http://bit.ly/1hIGgep> ScienceDaily, 26 February 2014. Web.
Elmer, Vickie. “After Disclosing Employee Salaries, Buffer Was Inundated With Resumes” <http://bit.ly/1edJPIG> Quartz, 24 January 2014. Web.
Gascoigne, Joel. “Introducing Open Salaries at Buffer: Our Transparent Formula and All Individual Salaries” <http://bit.ly/1igXaPH> Buffer Open, 19 December 2013. Web.
Griswold, Alison. “At Whole Foods, Employees Can Look Up Other Employees’ Salaries” <http://bit.ly/1m73CNr> Entrepreneur, 4 March 2014. Web.
Meyer, Eric B. “Appeals Court Says Yes, Employees CAN Openly Discuss Wages” <http://bit.ly/1qZAO7l> TLNT, 27 March 2014. Web.
Nisen, Max. “Why You Should Reveal Everyone’s Salaries” <http://amex.co/1elRhQm> Open Forum, 25 September 2012. Web.
Silverman, Rachel Emma. “Psst… This Is What Your Co-Worker Is Paid” <http://on.wsj.com/1nw9nTH> The Wall Street Journal, 29 January 2013. Web.
Jurgen Appelo is the most popular European leadership author, listed on Inc.com’s Top 50 Management Experts. His latest book Management 3.0 #Workout, full of concrete games, tools, and practices, is available for free. Download it here: http://m30.me/wo

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