The Downside of Full Pay Transparency

https://www.wsj.com/articles/the-downside-of-full-pay-transparency-1502676360

by grellas • 9 years ago

148 209 9 years ago

whipoodle3• 9 years ago

But it can also have the opposite effect, demoralizing employees and driving valuable talent away, especially when it isn’t clear why some people are paid more than others.

Yes, if only something could be done about that.

ch4s3• 9 years ago

Sometimes I think that the staff at the WSJ has no understanding of irony.

NateyJay• 9 years ago

This article says that it's easier and better for companies to keep their unfair compensation schemes private than risk employee unhappiness by making them transparent.

Sure, it's easier and better for companies to keep their dirty laundry hidden, but it's better for employees. That's the whole point of transparency: to see the unfairness, and to work to fix it. And if you don't fix it, you won't be able to attract talent.

pnathan• 9 years ago

It is the Wall Street Journal. It's a paper for management and companies optimizing for companies.

It's the nature of the beast.

matwood3• 9 years ago

Define ‘fair’.

whipoodle3• 9 years ago

People get what they deserve and deserve what they get.

phoobahr• 9 years ago

So.... Companies used to using information-hiding to manipulate negotiations with employees find that Thierry culture and skill sets aren't well adapted to maintaining the 'house advantage' in a free and open market place for talent.

This is my surprised face.

Mitchhhs• 9 years ago

The problem with pay transparency starts with the problem of determining compensation itself. If compensation could be a direct output of an algorithm that was highly accurate based on attributes of an individual that highly predict their market worth, pay transparency works well because people could agree that this person is being paid fairly. Also, if everyones pay could be dynamically determined it would help too. Basically, people get hired and get their salary set. Then new people are being recruited and market dynamics may have changed and now maybe a higher salary is required to attract this candidate.

I'm not being very articulate here, but i'd say the problem with pay transparency isn't the transparency part, but the actual process of determining fair/market-clearing wages for employees.

abtinf6• 9 years ago

If compensation could be a direct output of an algorithm ... people could agree that this person is being paid fairly

Nope. Then they would start accusing the algorithm of being racist, sexist, otherist. They would cite institutional bias - bias so pervasive everyone has it even while no individuals do - and demand the algorithm be tweaked for their favored lobbyists.

The problem with pay transparency is not that it doesn't work; the problem is that the entire concept is immoral and evil. How much money you make is, properly, strictly a conversation between the parties in the transaction. No one else should care about your income; they should focus on maximizing their own value and find those for whom their services are the most valuable. The kinds of benefits valuable to an individual are unique: everyone has a different in background, life choices, purpose, and capability. There is no way to account for the fact that person A values work that involves travel, while person B is interested in work with a predictable schedule; and it is improper for person B to look at person A's compensation and make judgements about their own compensation, not because it is impossible to analyze all of the factors, but because person B must decide their own purpose and work toward it.

This is simply another manifestation of the inequality debate. Equal is Unfair is a great book that unpacks the issues of inequality: https://www.amazon.com/Equal-Unfair-Americas-Misguided-Inequ...

090949203943143• 9 years ago

The problem with pay transparency is not that it doesn't work; the problem is that the entire concept is immoral and evil. How much money you make is, properly, strictly a conversation between the parties in the transaction.

so how does this differ from any other good/transaction where we DO share prices? Why is it not immoral and evil that I can compare prices between amazon and walmart?

All the problem you describe can be resolved by employers either justifying themselves to their employees like adults, paying more, or the employees quitting. All of which are free market actions, the first of which having the added bonus of humanising the relationship. The only downside: you can't just treat your employees like "human resources" and get away with it as easily. You need to treat them as people

trowawee5• 9 years ago

How much money you make is, properly, strictly a conversation between the parties in the transaction.

If one party in a negotiation has extensive knowledge of the market and the other has a deliberately obfuscated view of the market, there is no way to have an equal negotiation. Which is what companies have relied on for years to systematically underpay certain classes of people.

moduspol• 9 years ago

I agree with your first paragraph, but I'm not sure about the second one.

My instincts tell me that labor is something with a price like anything else, and (aside from claims of unfairness) more transparency is better. The end result over time would presumably be the price of labor (salaries) would more closely resemble actual market value.

But I also consider myself to be a high performer, and the last thing I want when negotiating a raise is my boss to have to think about how the rest of the team will feel about it. I want him to care only about whether or not my services are worth it for the price I'm asking. And that just won't happen if it's all transparent.

neilwilson4• 9 years ago

"How much money you make is, properly, strictly a conversation between the parties in the transaction."

No it isn't - because it allows you to command more of society's resources for yourself over others.

So it is very much a matter for others - and you have to justify yourself to them because you want them to make stuff for you.

If you are paid more than me, and I think I'm worth more than you I will make my case or test the job market to see if I'm right.

Relative value is exactly what the world is about. That's why prices in stock markets are published.

consz3• 9 years ago

Ultimately, I feel your argument boils down to "the context of my peers in my profession is not entirely identical to my own, therefore I can't use any information (such as their salary) to inform my own context". This seems obviously false, so surely I must be misunderstanding?

ejnulls• 9 years ago

Yes, I've been thinking a lot about value the last few months and this is similar to the conclusion I reached. No one is paid based on the value of their output because it is nigh impossible to actually determine for most people!

So we use a proxy for value that is much more closely tied to an employee's leverage in the market place. Does your profession have a government granted monopoly (law/medicine)? Certification to entry? Are you a better negotiator? Do you have another higher job offer? Do you have personal relationships with a business's customers (sales)? All of these things are correlated with increased leverage and thus increased compensation.

Output is largely not. It may set a ceiling for compensation, but it is not as related to compensation as a persons' leverage.

And it follows that people with high amounts of leverage and comparatively low amounts of output will be "screwed" by salary transparency. They will have to justify why their leverage is worth more than someone else's output and that will make them unhappy.

maxxxxx8• 9 years ago

If you can't explain why someone gets paid less than someone else then you have a problem that shouldn't be solved by keeping people in the dark.

matwood3• 9 years ago

On the flip side do people want all the reasons listed out why someone is better than them?

Athletes are used to this comparison because it’s happened literally their entire life (well until the everyone gets a trophy crowd kicked in), but I’m not sure the population at large is ready to be explicitly told of their short comings.

phil215• 9 years ago

Yep. People are horribly fragile when it comes to this, and vastly overestimate their importance in comparison to others.

Just this week I had a talk with an employee asking for advice. He was paid $10k under one of his peers, and he was rather upset he got told to go pound sand when he asked to be brought up to that level.

My thoughts at the time? Only $10k? The other guy is vastly more valuable in his role than you, sounds like either you're overpaid, or the other guy is underpaid to me!

The fact the guy thought it was unfair is the norm for humans. Exceedingly few folks have the self-awareness to step back and say "oh yeah, that guy really is more valuable to the company than I am - maybe I should step up my game".

Typically we call those folks high performers, and they aren't generally the ones having issues getting paid well :)

ryandrake4• 9 years ago

Personally, I would love to have a performance review where I received specific, actionable feedback based on quantifiable metrics. Usually it's "You need to improve in some unspecified way in this vaguely defined category of skills like 'Innovation.' Yea, do more 'Innovation' next year."

anotheryou• 9 years ago

I want transparency to be the option to vote for, but I'm really undecided.

The explanation could be:

- you are trainee/junior not senior

- you demanded too less

- the labor market makes your position easier/cheaper to replace

- the company acquired big funding only after you joined

All is 100% independent from the amount of value you generate and work you do.

I once was told that the young designer on the team basically makes minimum wage and they therefore could not pay me what I demanded for becoming the CTO (One of a couple of things that made me reject the offer).

I'd probably feel bad for the young people in my team, if I knew what they are paid. I already feel bad when the team orders more expensive food and everybody joins.

The alternative would be raising or even loans, I don't know if the company could survive than.

On the other hand, a fair step-ladder to higher paid jobs within the company might be a nice incentive.

everdev• 9 years ago

I've seen team chemistry dissolve when pay information was released.

The problem is with egos, Employee A might view themselves as more valuable to the company than Employee B and vice versa. If Employee B gets a raise, Employee A will want one too, or a higher one. A spiral of trying to get a higher salary relative to other team members can begin.

Also, Employee A and Employee B might have private salaries that meet or exceed their expectations and everyone is happy. When salary information is public, unhealthy comparing can begin. Even though they're grateful for what they have, they see that more might be available if they ask for it.

kaosjester• 9 years ago

It seems like this could be fairly easily resolved by the management having a rigid "we pay everyone the same, deal with it" position, perhaps up and and including a formula for salary computations.

mattnewton• 9 years ago

Get ready to see a) people gaming the formula and b) talent leaving because they feel like they are paid the same as people who contribute less.

Edit: Not that it isn’t currently gamed and not that this doesn’t already happen: I’m pro pay transparency but there aren’t any magic fixes here, this is a really complicated social issue.

kgwgk• 9 years ago

Paying everyone the same is the right policy if everyone is equally productive. That equilibrium might be reached by the “overpaid” ones getting better (or leaving) or by the “underpaid” ones getting worse (or leaving). One can fairly easily predict which of those scenarios is more likely.

rjzzleep• 9 years ago

A lot of German institutions work this way. There are a lot of problems with this. But one of the biggest is the following:

When you notice that someone that brings zero value to the company gets the same salary as you one of two things happens:

1. you either loose any incentive to do anything

2. or you quit.

In time all what you're left with is the people you don't want.

maxxxxx8• 9 years ago

You don't have to pay everyone the same. Just be ready to justify why one gets paid more than other. CEOs have pay transparency but somehow the world doesn't go under.

phil215• 9 years ago

Which is the precise reason I fled union work when I was younger.

I got sick of being compensated the same (typically worse) as the worst employee on the floor, while doing 5-10x the productive output.

All these policies do over time is ensure you lose top-tier talent and eventually get stuck with a lot of middling folks who are content with the status quo. This can be a good or a bad thing, depending on who you are.

gozur88• 9 years ago

It seems like you'd lose your highest performers that way. People who put in a lot of extra hours expect to be compensated for it.

Also, do you really want to set up your incentives such that the smart thing to do is work just hard enough to avoid getting fired?

maxxxxx8• 9 years ago

Salaries are a dysfunctional market like health care. No market can function properly without all parties having the same information.

All arguments against salary transparency seem to be that people will be unhappy when they find out that the company has screwed them over and therefore it's better for these people to be ignorant.

ythn• 9 years ago

All arguments against salary transparency seem to be that people will be unhappy when they find out that the company has screwed them over and therefore it's better for these people to be ignorant.

Why do you assume someone making less is being "screwed over"? Imagine employees A and B. B greatly outperforms A and therefore rightly makes more. However, A is delusional about his skills and thinks he is as good as B. Pay information is made transparent and A sees he is making less. This makes him mad because by all rights he ought to be making as much as B! This type of comparison/resentment might make A want to quit or ask for a raise, whereas before he was both content and fairly paid at his performance level.

jimbobimbo6• 9 years ago

No, there're other arguments as well. One of which is privacy, for example. Many people value their privacy more than some elusive goal of full transparency.

ballenf2• 9 years ago

No market can function properly without all parties having the same information.

Salary info is a very small piece of the information needed to evaluate the fairness.

The article details quite extensively how difficult it is to communicate the totality of information in all but a few circumstances. If everyone could see every piece of relevant info then I'd agree.

One example: my value to the company may be for something you see as worthless. But you don't have the full strategic roadmap of the company's leadership in mind when you devalue my contribution. And the company may have valid reasons for not making the strategy widely known in the company. If you learned that I got a big raise for my success in that area, you'd feel slighted. The problem there isn't lack of info re: salaries, it's the impossibility of every employee having every bit of info needed to make the assessment.

Shivetya• 9 years ago

No, you completely discount human nature here. There are far too many people who are more concerned about what others get and have than is healthy. Plus in many work environments you end up with those who either think that one party is not justified in their rate or that they themselves are woefully under compensated. Worse, you have a bunch who will not work beyond what they think is "fair".

I like the privacy of my coworkers not knowing my exact compensation, it is not their business. If we follow your logic to its natural end, why not force disclosure of all expenditures each of us make as well? (which on another topic, that is the best reason to never have digital currencies)

jaredklewis• 9 years ago

No market can function properly without all parties having the same information

What markets function like this? I have no idea what the cost of growing, harvesting, shipping, and selling a banana is. At every step of this process there are capital investments, labor costs, and profit margins that are totally opaque to me. And yet I can look at the price of a banana and decide if I want to spend the money or not. One beautiful aspect of markets is that not everyone has to spend years researching every purchasing decision. The makert sets a price for you. If one company has margins that are too high, another steps in to take some of that profit, by offering at a lower price until it reaches equilibrium.

The job market seems similar. I don’t know how companies set their offer price but I am capable of evaluating offers all the same.

lend000• 9 years ago

It only seems weird because it isn't the norm -- like one of the other commenters mentioned, we tend to know the approximate net worth / salaries of family/friends and yet society, on average, continues to run.

And in large companies with salary ladders, we know the range of all our coworkers.

vilmosi2• 9 years ago

You have some truth to it but maybe we'll get used to it. Same how we get used to X being taller/more attractive than us. We all know it's true, we just don't care that much anymore. It's just life.

michaelchisari• 9 years ago

Seems like a pandora problem to me. You have the problem because that box has never been opened. Had that been the way salaries were handled from the beginning, you wouldn't have the issue. But opening up salary information mid-stream can cause a lot of conflicts (some justified, some not).

The question is, when going from private to public information, how best to handle it so that it isn't a source of chaos.

brm• 9 years ago

One part of this I've never seen discussed is that they reveal the salaries but they almost never reveal what the company believes it can afford to pay everyone involved and how the salaries influence the health of the company. It becomes employee vs employee vs company then instead of people seeing how it all fits together.

I often think its that the transparency is only halfway that causes many of these peer to peer problems. It also doesn't help that most white collar work these days isn't directly translatable to revenue. Its easier to tell a salesman what he's worth than a designer etc...

lr4444lr• 9 years ago

Disagree. A person's salary is not simply based on the work they do for the company. It is the opportunity cost of their next best option + whatever incentive is needed to make working there better enough to a significant degree. That cost isn't strictly money, and is intensely personal, in the literal sense of the word. Posting people's salaries obscures the determinations that went into settling on that number, and convey a false metric to compare the incomparable.

retrogradeorbit• 9 years ago

Interesting that you called this a pandora problem. It seems you are suggesting you should just open pandora's box and release all the world's evils! Doesn't the fable imply the solution is keeping the box shut, not to open it as quickly as possible and just get used to the evil?

greedo• 9 years ago

While opaque companies might not release raise figures, everyone generally knows that a promotion involves a raise, in addition to any status bump (assuming no real increase in responsibilities). So promotions can serve as a proxy for raises, causing the same ego issue.

alayek• 9 years ago

You'd be surprised.

I have a friend, whose team had this policy - no raise with promotion.

He got a promotion with no raise. When asked, his manager said, "you shouldn't work for money. You should work for the learning experience."

He resigned in a month. And this was not some random fringe start-up - one of the biggest companies in the world, with over $100B in market cap.

johnwalker• 9 years ago

I can definitely understand why a team could dissolve. But there are really only upsides for employees to understand why they're being paid X and to be able to model their behavior after the person that gets paid Y.

shaftoe• 9 years ago

That would work if people were Vulcans.

save_ferris• 9 years ago

Not necessarily. I once found out how much one of my team members made that started on the same day in the same role as I with the same amount of experience (the HR manager left his most recent offer letter open on her screen about a year and a half after we started). He was making about 66% more than I was (not an exaggeration) and our output was pretty comparable. Needless to say, modifying my behavior to be more like him wasn't the first (or 100th) thing that came to mind.

Was it fair? Who knows, it's not really possible to debate that because it all depends on your definition of "fair". But in my experience, it's not very realistic to assume that employee A sees what employee B makes and objectively understands how they need to improve to make what employee B makes. Especially since that's not really how pay is negotiated anyway.

walshemj7• 9 years ago

but the external market breaks that you might need to hire a new person when the market is hot and they will be paid more than some one hired in a recession

kromem2• 9 years ago

The problem is not with egos, the problem is that they have a preconceived notion that they are equal with their coworkers, and then suddenly find out they are not.

Had the designation been clear from day one and each individual pay scale evolved over time publicly, I seriously doubt there'd be the same issues.

In essence, a reveal all at once is the equivalent of a massive swath of promotions to one's co-workers and not to yourself (for the lower paid), all in one day - yeah, of COURSE it's going to harm team dynamics. That doesn't mean we should only promote people in secret though, right?

Transparent compensation is simply a more granular hierarchy of representative productivity and value to a company, and the respective compensation, than a simple job title. We don't lose our minds at the idea that some employees are junior, others senior, etc. So what's substantially different with a more granular system to what already exists?

Any employee should be able to ask "Why is Bob making more than me?" the same way they might ask "Why was Bob promoted to XYZ position instead of me?" And a healthy company should be able to answer the question with the reasons why for the former, just as a healthy company can answer the latter. If an employee is lagging in salary over time because upper management isn't seeing the same value as their equally experienced co-workers, this should be made clear to that employee so that they can find out why their efforts aren't having as much value, and either adapt accordingly, or find an environment where their efforts will be better valued.

Imagine a classroom where each student can see their own grade as a number out of 100, but has no idea what the average is, spread, etc. You could have a C student who thinks they are doing as well as an A student, because they have no context for how they are being graded. Yes, there will be drama with each student knowing the other's grade, but they'll better know their own relative performances.

At very least, we should have anonymous compensation transparency, where employees can know where their own salary stands in the company compared to tokenized other salaries, so the conversation can at least be "Why is #335 making more than me?" instead of "Why is Bob making more than me?". In small firms/upper management levels this won't be all that anonymous, but it could mitigate the drama in larger employment pools while still providing the contextual benefit.

ryandrake4• 9 years ago

At very least, we should have anonymous compensation transparency, where employees can know where their own salary stands in the company compared to tokenized other salaries

This is a great and underrated idea. Have an upvote! This solves the privacy concern neatly while removing the unfair information asymmetry.

closeparen• 9 years ago

Imagine a classroom where each student can see their own grade as a number out of 100, but has no idea what the average is, spread, etc. You could have a C student who thinks they are doing as well as an A student, because they have no context for how they are being graded. Yes, there will be drama with each student knowing the other's grade, but they'll better know their own relative performances.

Don't have to imagine it. This is how all of my education worked from kindergarten through undergrad. Grades are there as an absolute measure of how well you've accomplished what you and the institution set out to do; your peers' performance is not relevant to that question.

My high school and university both had longstanding policies against disclosing any information about GPA distribution or class rank, explicitly to discourage students from measuring themselves in relation to each other. Facing highly ambitious and academically successful student bodies, administrators (rightly, in my opinion) feared the cutthroat and competitive climate that grade transparency might create, and felt it didn't align with either institution's mandate.

Instead, we measured ourselves against our education and career goals and broad population averages, against which we were overwhelmingly successful. You didn't have to be better than your friends, only good enough for the college applications you had in mind (or later, the grad schools or employers you had in mind).

I view professional compensation the same way. A salary is good to the extent that it funds the housing, transportation, financial security, dining, entertainment, toys, travel, etc. that I'm after. As long as I'm in the Bay Area, no salary will ever be satisfying with respect to housing, but later in life, once I've attained conditions for my family similar to the ones I grew up in, what do I care if a coworker makes more? (Though I certainly couldn't resist reading and resenting it if available, I have no need for this information).

Put another way: I don't care that I'm beating 90% of startup employees if I still have to live with roommates. I don't care that I'm beating 90% of my high school classmates if none of them are going to college at all. I don't care that 90% of bigco employees are beating me if I can comfortably afford a nice condo with a short walk to the office. I don't care that 90% of my high school classmates are beating me if they're all going to Harvard and I'm accepted to the schools between #2 and #10.

ThrustVectoring• 9 years ago

It's less about ego, and more that the removal of ambiguity in the workplace hierarchy is itself a social attack. If Alice is considered "better" than Bob, then Bob cannot act as if he were "better" without getting smacked down for being uppity or putting on airs or the like.

It's not about the money. It's not even the fact that you ranked them. It's that you ranked them publicly, and from a place of authority to boot. And worse still, on a one-dimensional scale.

dx0345• 9 years ago

The problem is that everyone thinks they can have individual salary levels. For many industries it was/is common that salaries are equal across groups. Good performance can lead to a higher bonus and make you move up the ranks but there was no discrimination for people in the same position. Unions enforced that and everyone could see their potential salary.

Maybe introducing those salaries would be a benefit for both employees and employers.

scaryclam2• 9 years ago

Though this would mean, if I'm trying to hire a developer and their salary requirement is 1000 more than the set band, I either have to employ them at a level too high and pay them more than I budgeted, or not hire them at all even though I could afford the additional 1000 and they were a good fit. I really dislike inflexibility like that. Do some employees get a bit on an unfair deal if they don't negotiate? Yes, they do, but who really cares, as long as they are happy? I much prefer being in the dark about others pay and being able to negotiate terms of employment than shoehorning everyone into the same mold.

crdoconnor4• 9 years ago

The problem is with egos, Employee A might view themselves as more valuable to the company than Employee B and vice versa.

In which case after finding out they leave and if it turns out they're not all that valuable they mainly just end up screwing themselves.

I'm not sure why any employer would consider this a problem.

An underpaid employee leaving and getting a better job though - sure, that's a problem.

astura4• 9 years ago

The problem is with egos, Employee A might view themselves as more valuable to the company than Employee B and vice versa. If Employee B gets a raise, Employee A will want one too, or a higher one. A spiral of trying to get a higher salary relative to other team members can begin

The same exact thing happens with promotions and titles, so should they be secret too? If it's such a problem then how about getting rid of positions altogether and just say "everyone's equal?"

The second point is exactly why salaries are hidden - to drive down wages. There's a damn good reason why American professional athletes players union make sure salaries are published. You only thought your salary was fair based on the information your employer gave, which was "it's fair, trust us."

thetron• 9 years ago

I work for a company with full pay transparency – well, complete transparency across all parts of the organisation – I can't imagine working in an opaque environment ever again. I love it.

Harkins• 9 years ago

And the legal basis for such rules [prohibitions on employees sharing salary information with their peers] is at best murky—indeed, a large number of U.S. states now explicitly ban them.

And besides that, the National Labor Relations Board considers employees discussing pay to be protected concerted activity. I'm not sure if just having the rule is illegal, but enforcing it certainly is.

_m8fo2• 9 years ago

Transparency aside, I've seen little evidence that employers can properly measure the exact value an employee adds to their organization.

The reason for most of these problems lies there. If employers could solve that there wouldn't be any problem. However, since that isn't the case, employees can take advantage of the opaqueness.

---

Case and point: if you could measure the value, you could figure out what is valuable, and if you can figure out what's valuable and what qualities it takes to create said value then your organization would already be successful.

neilwilson4• 9 years ago

If the information is available to all the function of the labour market will force the value to the correct figure.

It's not a matter of individual firms. It is a matter of individual firms interacting with a functional market.

_m8fo2• 9 years ago

I disagree. What's valuable, and therefore compensation, is a matter of opinion, not fact.

mankash666• 9 years ago

No surprise that a Murdoch publication hell bent on proselytizing Reganomics opines against open salary information. Nothing here stands muster - in school, kids freely share their grading information, and seldom do they not understand why an objectively better performance earned someone a better grade

detaro• 9 years ago

Pupils will disagree on what "objectively better" means if at all possible though, despite individual pieces of schoolwork being relatively easy to rank.

dragonwriter2• 9 years ago

Full pay transparency works well in two settings. One is where pay levels are based simply on rank and tenure, and perhaps location—not on performance. Think government agencies.

But, that's not how government agencies work; in the federal general schedule system initial pay steps within a grade can vary based on special needs of the hiring agency or special qualification of the candidate, and advancement in steps within the grade is based not only on longevity but acceptable performance.

State and local civil service systems I've seen seem to be generally similar.

holograham• 9 years ago

have you ever worked in a government setting? I would hardly call them the epitome of a highly functioning workforce. Laziness and waste is rampant.

ryandrake4• 9 years ago

Sorry, but laziness and waste is rampant in the corporate world as well.

dragonwriter2• 9 years ago

have you ever worked in a government setting?

Only for a little over 15 years.

I would hardly call them the epitome of a highly functioning workforce

A mixed bag, IME, as are private orgs. But, even insofar as your claim is true, it would only be relevant as counterevidence (weak, perhaps, because of potential compounding factors) to the article’s claim that government agencies are an environment in which full pay transparency is not demoralizing and demotivating.

xster4• 9 years ago

Yet another corporate lobbyist type response

  - You can't have net neutrality, it'll confuse customers
  - Food origin labeling? Bad, people will realize we have no idea where food came from.
  - Single payer? But it'll undermine the whole employer paid insurance patchwork.
  - Close tax loopholes? We'll just push rich people to move money offshore.
  - Stop bombing the world? Where's all the weapons, oil and mercenary companies gonna make money from?
  - Share compensation data? People will quit once they realize their pay grading mechanism is subjective and arbitrary.

colemannugent2• 9 years ago

Share compensation data? People will quit once they realize their pay grading mechanism is subjective and arbitrary

Do you have an objective and determinite way to set compensation? If you do then you should tell the good folks here at YC that you have a great startup idea, pay gradation as a service, and collect your easy fortune.

All pay grading schemes are subjective by definition. A product is worth only what others will pay for it. When you are looking for employment you are selling your labor to an employer, of course your prospective employer can always not buy your product, especially if she can find another product for less.

loa_in_• 9 years ago

This implies the problem is lack of understanding on behalf of the payees. You said what you know, therefore I understand you would not expect to be paid 100% "fairly" and you wouldn't get mad if paycheck information was open to your co-employees.

xster4• 9 years ago

I think it's worth taking a step back and looking at the grand scheme. Everything is a non-binary spectrum.

As an example, if you temporarily suspend societal norm (which is what I'm challenging here), to think that we have the audacity to pretend that we know how to tax people and objectively rate society's needs and redistribute wealth into various public programs in a way that's objectively fair to everyone is absurd if we try to think of objectivity as a binary thing.

But our policies obviously have socialistic elements because we don't dogmatically lock ourselves in a strict dichotomy.

And I argue for the same thing in work compensation. Some form of pure cosmic objectivity may not ever be possible but it doesn't mean we should ideologically oppose attempts to approach that end of the spectrum.

nielsole• 9 years ago

There is another argument being made, that people become miserable if they compare their wages, because many people fail at correctly assessing their own value.

I[sic] found that nearly 40% perceived themselves as performing within the top 5% of their peers.

xster4• 9 years ago

Might just be rhetorical at this point. I'm just thinking would this be similar to "x% of people believe they belong to the (y < x)% of people who don't have any cancerous cells in their body" and then saying cancer diagnostics are bad because information purely serves to make people sad for no reason.

HelloNurse• 9 years ago

it can also have the opposite effect, demoralizing employees and driving valuable talent away, especially when it isn’t clear why some people are paid more than others.

That's the point. Valuable talent _wants_ to be driven away by evidence of unfair compensation.

kevinmhickey• 9 years ago

I have worked for a company with full pay transparency and for several with full opacity. I prefer opacity.

At the transparent company, I was hired in as one of the highest paid employees at a time that the company was struggling. Everyone ranked higher than me had taken a voluntary pay cut, to the point that some of them were paid less than me.

I felt guilty for taking more money than them, but conflicted as the problems were not of my making. I felt some resentment at pay peers that were underperforming. I was able to observe the performance of other employees and knew which ones were being treated fairly and not.

It was information that did nothing to benefit me, my peers or those below us in the organization. It led to more bad feelings than good and I am grateful that I do not have that information at my current employer.

I prefer sites like Glassdoor where you can get a general idea of what your coworkers might make, without the fine resolution of a name to dollar amount mapping.

majormajor3• 9 years ago

A lot of people are paranoid about the malicious case: "the company is trying to screw you over."

I don't think it's that hard to identify malicious employers even without knowing everyone's salaries.

The non-malicious case then boils down, to me, to: who do I think is less biased in evaluating my value vs my peer's value? Me, my peer, or a third party that is neither of us? The answer to that is pretty obvious, and so what am I going to gain except being overly focused on me against my peers vs me against my past self?

I would be very interested to know how many people who want full transparency are managers who've had to deal with things like "there's a mismatch in these people's salary because they came in at different levels but are now performing equally, but if I give a massive raise (say, 30%+) this year am I setting them up to be disappointed when the size of that isn't duplicated in the future vs spreading that across 4 every-6-month slower-paced bumps?" Or with employees who are radically wrong about how valuable they are compared to a peer, because they're focused purely on code and not noticing how their peer laid a bunch of ground work in negotiating with product and other stakeholders to eliminate some requirements that would've made the project take several months longer?

You can be transparent about the why: "we're going to be doing some market adjustments to your pay, but here's how many people we've seen get disgruntled and leave in the past if we do it too fast," and "the next step for you is looking beyond the tasks in front of you to see the bigger picture of these projects, and building a relationship with people from the rest of the business," without the gut punch that "here's how much less money you're making" is.

freedomben• 9 years ago

I completely agree. My experience was exactly the same.

I also noticed that there were engineers that made a lot more than me because of seniority, but they weren't very good and didn't contribute proportionally. In some cases they were actually a drag on the system because they didn't want to stay current with tech. The transparent pay actually became a disincentive to work hard and a demotivator.

We also had some "class-warfare" type problems, especially with some of the technicians that had no prior experience and were straight out of high school. They were generally paid roughly double minimum wage, whereas engineers would get around triple to quadruple the minimum wage. They resented that, and it created conflict and discomfort in the workplace that otherwise would not have been.

Despite some of the benefits, the downsides were just too high. I like seeing "ranges" so you can get a feel for whether you're getting screwed, but not necessarily individual pay levels.

walshemj7• 9 years ago

well Duh you would expect a Technician to get paid less than an "Engineer".

gcb0• 9 years ago

so the problem was that the company was crashing, not open salaries.

you sound like a nice person who would have worried about knowing about the pay cuts even if the values were unknown to you. you might even have been more worried thinking it was more.

dx0345• 9 years ago

Part of that could be due to selection bias. Companies that make pay transparent are typically less established and thus carry higher risk. Not saying that transparent pay works better but I think the examples we have give a very skewed view.

gadders• 9 years ago

Do you think publishing pay bands would be OK, similar to what happens for government employees? So you knew the say 5-10k band that someone was in, but not their place in that band.

astura4• 9 years ago

It was information that did nothing to benefit me, my peers or those below us in the organization.

You are mistaken, open salaries benefited you. They let you actually see the huge organizational problems in the company that would have otherwise been hidden. You had more information in which to make your career decisions on.

The bad feelings were not caused by the open salaries, they were caused by the problems you listed.

unabst2• 9 years ago

Exactly. Information is never the cause. It is only the trail. The most information can do -- and is meant to do -- is influence people. Ergo, the bad or good feelings (or decisions, in most cases).

Except, the problem is then the inability of the person with that information to attack those problems.

Anyone with the capacity to do something about those root causes should know everything. For the rest, that information is irrelevant to their job, and distracting at best.

neilwilson4• 9 years ago

So the downside of Full Pay Transparency appears to be that it causes the labour market to function as a market by increasing the information necessary to eliminate sub-optimality.

Who knew?

It isn't the company that provides you with job security. It is the job market. If everybody who thinks they are being underpaid moves on, it soon sorts itself out.

epx3• 9 years ago

"nearly 40% perceived themselves as performing within the top 5% of their peers.". That's exactly the problem. I've been well paid my whole life, but in comparison with other peoples' productivity, I should have been paid thrice as much. I don't complain; everybody has to eat, everybody has to take care of their families, etc. But I am damn sure all these people would not tolerate knowing even that I got as little as 30% more.

This is one reason why I don't have a typical job for almost a decade now. I get interview invitations from big SV companies, but I hardly ever get invitations from local software houses, and when it happened, it went nowhere because they wanted to pay the average ERP programmer salary, citing "internal politics".

It also happens when I do per-hour consulting work - my rate is considered high compared to what Dummy Database Consulting charges, so I have to settle for lower values, but at least the values are higher in absolute terms.

cortesoft• 9 years ago

You do realize the irony in quoting the part about how so many people overvalue their performance and then following it up by talking about how you are 3x as productive as everyone else at your previous companies?

jackgolding• 9 years ago

What you are saying is as a top performer it financially was and is better for you to charge based on results? (i.e. as a consultant)

epx3• 9 years ago

Yes.

sdiupIGPWEfh• 9 years ago

Wait, what is the "average ERP programmer salary" in your area? I ask, because I've seen them billed out by consultancies at like $200 an hour. What slice of that makes it back to the devs?

epx3• 9 years ago

It is a bit difficult to compare directly because I am Brazilian. An ERP dev does around R$ 6k/mo (roughly US$ 24k/year, but labor costs make it cost US$ 48k/year to the employer.) A typical hourly rate is R$ 150-200 (US$ 50-66).

pjungwir• 9 years ago

Reflecting on this article brings up a lot of contractions in my own past thinking:

I wouldn't want to work somewhere with public salaries, because I suspect that like unions they wind up enforcing mediocrity. I'm confident enough in my own abilities that I want the possibility of out-performing and being compensated for it.

On the other hand, as an employee I would want freedom to discuss salary with fellow employees, to get better information when it's time to negotiate raises and promotions.

Also, in a professional services firm, which I think is the ideal structure for software developers to capture more of their value, the partners all know each other's earnings (at least assuming the firm is of modest size). What's more, I agree pretty strongly with David Maister's recommendation in Managing the Professional Services Firm that partner profit-sharing should be based on seniority rather than some metric, since that is less likely to distort incentives and cause resentment.

It seems like I am all over the place! I'm not yet convinced these are true contradictions, but having them laid side-by-side does force me to ask why not.

seem_2211• 9 years ago

I think the hardest bit about salaries is that most people bring an intangible amount of value to their companies, with pay usually determined by the local market.

For example, I'm not sure how you'd accurately determine how much someone in HR middle management brings over the course of a year, or for someone working in corporate PR.

The company I work for has extremely transparent pay - you keep a % of the amount you bring in. It's no great secret how much anyone makes in a given month, nor how much the company brings in. But this only really works in that we're all working sales jobs, so you don't have to justify anything.

throwawaymsft• 9 years ago

There are numerous thought experiments on how transparent salaries affect team cohesion and go against human nature.

Meanwhile, professional sports teams and the military, who rely on team cohesion more than random white collar professionals, have transparent salaries. If teams worked better with opaque salaries wouldn’t these ultra competitive/life-or-death industries have figured it out?

mk89• 9 years ago

The concept of salary is interpreted by people in all different ways since always, therefore you won't achieve nothing but grudge and dysfunctional teams on long term, unless pays are really fair and people are really the right ones for implementing such a system.

Some people see their self worth in their job, some in how much they earn, some mixed, some in how much good they do at work, some in having a family, etc. One fixed component is the salary which can't be the lever among people but it can certainly be interpreted as such, therefore should be private. Also, if I am a better negotiator than you are, why should I be perceived in a negative way? "Oh he works less than me, but he earns more". Maybe he is better at selling himself (?).

But it's ok that companies do such experiments, otherwise we would not know the outcome...

kristofferR• 9 years ago

I like the Norwegian model, full tax/income transparency.

fastbeef• 9 years ago

If it's anything like the Swedish model, it's not as easy as that. You can of course solicit someones tax return from the Tax Agency (as it's a public record) and read how much income they declared, but it's not as easy as typing in someone's name into an API and getting "They make X per month".

dx0345• 9 years ago

The process is quite easy and can be done online [1] but since 2014, the person in question will be informed via email about the request. But as anyone can request salaries, you can just ask someone else to request your neighbour's salary if you don't want him to see it was you. Journalists are exempt from that and can see any tax report without notification.

[1] http://www.skatteetaten.no/en/person/Tax-settlement/Search-i...

kruhft• 9 years ago

All income should be reported.

mietek• 9 years ago

Surveys done shortly after this found that employees who went to the website and discovered they were paid below the median for their peers were much less satisfied on average with their jobs and more likely to express an intent to depart than those who were paid below the median but didn’t receive the prompt to compare their pay. So in this case, full pay transparency encouraged greater overall dissatisfaction and possibly turnover—the exact opposite of the power that full transparency has in the right situations to motivate employees and attract talent.

What really makes people unhappy: telling them that they are underpaid, or underpaying them?

Joakal• 9 years ago

Pay transparency could cause a revolt by women when they see they're paid less than men. This is not studies they were quoting but they could see themselves paid less than men for same work, etc. BBC and several other places are having this issue.

Without the pay transparency, the women would've been oblivious.

sonthonax• 9 years ago

Women are rarely paid less for the same jobs anymore.

https://www.ft.com/content/a0d8872c-d1b9-11e6-9341-7393bb2e1...

https://www.theguardian.com/money/2015/aug/29/women-in-20s-e...

Edit:

I do know you're talking about the 'scandal' where there was a paygap between male and female presenters in the BBC. Obviously it's not great, but it's also something I find it hard to care about when the story is, "Man is earning 500K a year, while woman is earning 300K".

dawnbreez4• 9 years ago

If your employees are angry and think that they're not paid fairly, that's on the employer to fix. Either it's perceptual, and the employer needs to clarify something, or it's a real gap, and the employer is at fault. This article suggests that the solution is to continue not telling people what they are paid. I concede that humans have terrible judgement in many things. This is why it's absolutely necessary to be as transparent as possible. Tl;dr: If your employees are complaining about unequal pay, you're doing something wrong.

wildmusings• 9 years ago

In a study of engineers at two major Silicon Valley companies conducted some years ago, I found that nearly 40% perceived themselves as performing within the top 5% of their peers. Ninety-two percent felt they were in the top quartile, and only one engineer felt his or her performance was below average.

This is the heart of the problem. People think they are more deserving than they actually are. When they find out that they're not getting paid as much as they think they should, relative to people who they wrongly think they perform better than, they will be upset at management and envious of their peers.

JohnnyConatus• 9 years ago

ITT people assuming they have an objective view of coworkers performance.

lolsal• 9 years ago

I can't really articulate why, but to me my salary and compensation is extremely private. I'm not ashamed of my compensation and I could justify it (compared to my peers for example), but it still seems like something that is extremely private. When I ask myself why I would care if my coworkers, family, friends, etc knew my compensation I can't come up with a solid answer. I am in my early 30s, if that matters.

If we think of compensation being directly and only related to the value that that person brings to a company, it seems like we're neglecting half the equation. The flow of value goes the other way as well - I would require higher compensation for the same value delivered if I did not like the company or the work environment for example. I could also require lower compensation if I really liked the company or work environment. How does this discrepancy have any bearing on compensation compared to a peer who is (for the sake of argument) delivering the same exact value to the company? This half of compensation is extremely personal and subjective.

If transparent compensation becomes the norm (or legally required), I can see myself migrating back to consulting work where I would charge by project or deliverable which would totally obscure my hourly compensation even if the contract itself was public.

Corrado• 9 years ago

This Joel On Software article[0] is my favorite work on compensation. It details a ladder system that exposes everyone's salary as well as the requirements to move up. The lack of individual bonuses is an interesting twist and I'm thinking that it might not work in a large company where you can't directly influence the direction of the company.

Then again, when requirements are clear it becomes much easier to make decisions that benefit the company. "Maybe we don't need to have the company retreat in Tibet this year."

[0] https://www.joelonsoftware.com/2000/08/30/fog-creek-compensa...

The Downside of Full Pay Transparency

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