Why transparent salaries make sense

http://blog.granttree.co.uk/post/70579054648/why-transparent-salaries-make-sense

by swombat • 13 years ago

36 59 13 years ago

blog.granttree.co.uk

kfk• 13 years ago

Maybe, but to me, this still looks like an intrusion to people's privacy.

Edit

To those "but if they tell you before". I reply: it still is. Google/Facebook tell you before that they will use your data for advertisement, some still think that's an intrusion of people's privacy anyway. However, Google/Facebook give me something in return, so I play along, but what's in it for me when a company makes my paycheck public? I just don't see the point of it. Also, once you grow over a certain size, I don't believe you can make up salaries with such rigid rules.

aaronholbrook• 13 years ago

I would think that the employee would have an idea that their salary would be publicly known before taking the job.

aeden• 13 years ago

If the organization makes it clear to potential hires before they are hired that the company has an open salary policy then the potential hire can choose to maintain their privacy and work elsewhere that does not have an open policy. In this case it probably is not an intrusion into employee privacy.

If an organization were to do this after the fact (i.e. when there are already employees on board) then I think you are right.

dlp211• 13 years ago

You do realize for markets to be efficient (including labor markets), it is a prerequisite that all parties have equal information. If your employer is the only one that knows what everyone is making, and you aren't allowed to discuss salary (which is at best taboo, and at worst a fireable offense at some companies), than you are at a disadvantage when you go to negotiate with them.

mathhead2• 13 years ago

I'm not really sure. At least, this would help others poaching from your company, as they know exactly what your employees are getting?

hfttrader• 13 years ago

This article is talking about internally transparent salaries. The salaries aren't disclosed to outside parties, so the policy doesn't help poachers.

GotAnyMegadeth• 13 years ago

Unless they've got someone on the inside...

mathhead2• 13 years ago

Sorry, it seems the Buffer article gave me a Halo here.

manuelflara• 13 years ago

As other said in the other thread, these are more or less market salaries. And people who wonder "what if your top developer asks you to match the 20% (or whatever) higher salary offer he got elsewhere, or she leaves? I guess these companies made the decision not to engage in those kinds of discussions. They have a policy already set, so the answer is no. Will people leave if they get offered a higher salary? Maybe. Again, this happens all the time anyway in any company, open salary or not. At least as an employee you know you're getting a good deal among your coworkers. I've personally felt bad after knowing that other coworkers that weren't more skilled than me and were hired after me, were making more. Maybe because they negotiated better, or had a better previous salary, or whatever. But it didn't sit well with me. And good luck going to management for a raise "because this other guy is just as good and has a better salary". It's just messy. And sure, most people don't usually talk about their salaries. But in my experience, when they do talk (and sooner or later the topic comes up), someone ends up feeling like they're being ripped off by the company or are undervalued. With open salaries, you know what you and everyone else is getting. You don't like it? Find a job elsewhere. But you can know all of that upfront instead of finding out later how your salary compares to others. Also, I guess these companies offer other benefits. For example, people were complaining in the other thread that Buffer's salaries were very low (at least for the Bay Area). I'd still would love to work for them (if I was in the market). They seem to be great people, love their culture and plus, they work remotely (so no need to live in an expensive area).

gizmo2• 13 years ago

For people who are skeptical this sort of transparency could ever work, consider that in Norway (also Finland and to a lesser extent Sweden) tax returns are completely open to the public:

http://skattelister.no/

So you can quickly look up what somebody's income and net worth are and the public at large are in favor of it.

pmelendez2• 13 years ago

I don't know how is in those countries here in Canada taxes are a combination of several factors, and you can be in the same salary range that somebody else and still be paying a significant different amount.

gizmo2• 13 years ago

Income, tax, and net worth are all public in Norway, so that issue doesn't exist.

poopsintub• 13 years ago

The public at large? The country only has 5 million citizens and a GDP of 250 billion dollars. Scale it by 60 and I would be interested how it works out, because that would be the size of the U.S.

DanielBMarkham• 13 years ago

I am progressive enough to love all the things people are changing up in the business world to make things better. I am also conservative enough to be somewhat dubious that things that sound awesome are actually awesome. Usually (but not always) things are the way they are because other things have been tried and this was the optimum solution found at the time. Many times we forget the initial experiments and start fresh without learning from all the work that went on before. This can both be a good thing and a bad thing.

My point is that as readers we should be careful. We need to distinguish between stories that tell us things we are predisposed to like and things that actually work. Daniel (swombat) has done a great job of sharing some personal experiences. I say let us let the real world decide. If we can all work from the beach in a transparent organization where there are no bosses? Freaking count me in on some of that action. But either it works or it doesn't. A few stories here or there about small companies trying new things is more of a fun read than anything else.

Good luck to all these experiments, though. With so many cool things being tried, I expect to see some great results over the next few years as the marketplace sorts out the efficient business ideas from the popular ones. Really cool times ahead!

ljoshua• 13 years ago

I work at a great mid-sized (300+ employees) company that has a transparent, set pay scale, with an even simpler formula than Buffer. Each inter-level promotion is a 10% bump, and a level promotion is 20%, all the way up. I love it.

A positive side effect is that promotions become more of a "are you performing at this level?" question rather than a politicking game, and responsibilities at each level become much more clearly defined. I think that many companies could benefit from adopting similar structures.

progx2• 13 years ago

And tomorrow write somebody the article "I read about transparent salaries yesterday".

Dont miss on Sunday: "Show HN: How i read an article about an article that assumes, that transparent salaries make sense."

Sorry, i cant resist.

pmelendez2• 13 years ago

Don't be sorry, that idea comes to my mind any time I see that pattern too. It is somehow funny, like people hacking the stories and titles to be used as another level of conversation.

Not new nor HN exclusive, but still interesting.

progx2• 13 years ago

Sometimes i am not sure if it is for an another level of conversation, or simple a try to get some traffic from strong visited topics.

KiwiCoder3• 13 years ago

Transparency makes sense in the right context, but adding this qualification makes the suggestion less controversial, and therefore less noteworthy, since almost anything can make sense in the right context.

One of the contexts in which full transparency is less appropriate is where a business has a legacy of inconsistent approaches to hiring and remuneration, meaning that person A is paid significantly more or less than person B, even though both do the same job at the same level. We might all agree this isn't fair, but at the same time it isn't necessarily something that is easily fixed. A business might simply not be able to afford to fix salary disparity in one hit. Transparency in this context might do more harm than good because it brings the disparity to the fore gives it a focus it would not otherwise have. It reduces the options available to the company that wants to fix this disparity, in particular it reduces the timeframe in which the disparity might be removed.

In fact, this is my recommendation for fixing a problem of salary disparity; institute a policy toward salary adjustment that makes it clear that discrepancies will over time tend to be eliminated. You can be fully open about this policy without disclosing individual salaries, and you can adjust the timeframe to fit your business context. If you're cash-poor you can take longer to fix the problem.

In other words, we should be transparent about the approach to setting and adjusting salaries, but the situation with individual salaries is more complicated.

swombat10• 13 years ago

The catch is, transparency forces a certain amount of fairness to come with it. I should probably have mentioned that in the article too.

It's difficult to keep unfair arrangements when all is transparent. You can't just implement transparent salaries, without also making the salary scale fair. And the benefit there is that once salaries are transparent, everyone knows that they're fair, because they can verify it for themselves.

KiwiCoder3• 13 years ago

Transparency forces fairness assuming you can afford to fix the discrepancies in an acceptable amount of time.

If you can't fix discrepancies in an acceptable amount of time then full transparency forces something unpleasant, and in this context it is potentially unhelpful to everyone.

silverbax88• 13 years ago

I used to think transparent salaries were a good idea. Until I was hiring people. Over time, I learned that it's not just transparent salaries in your own company that causes a problem - it's transparent salaries in other people's companies.

I've worked for multiple HR companies who performed studies, all of which showed that salary isn't the highest priority on employee concerns. Yet, in my experience, the number one reason I lose employees (or have left a job) was money.

Also, yes, I have poached employees from competitors by simply finding out how much they were making and offering more. You want to show me how much you are paying your people? It will tell me either that you are not profitable (if you are paying too much) or it will tell me the exact number I need to beat to take your best people.

And rest assured, I WILL take your best people.

Rest assured, I HAVE had my best people taken as well.

Business is not a democracy. Business is a competition. It is a fight for survival. No business is going to be so transparent to reveal enough to help their competitors. Even those 'transparent' companies who post on blogs their entire process? Trust me, they ain't showing you some of the most important stuff. They are marketing to you.

I don't know how this comment will be taken on HN, but I realized some time back that the number of people on HN who are smart is very high, but the number of people who actually run businesses is much, much lower. So I run a company. My comments are based on my experience.

shin_lao• 13 years ago

If you want to know the salary of someone you want to hire, you can just ask him... In which way is it hard?

gaius• 13 years ago

Why would they tell you? Unless you are in the process of actually making them an offer, you are just some random stranger asking personal questions.

Bahamut• 13 years ago

It is one of those potentially awkward questions - a candidate has no obligation to answer that question, and in some cases, I believe it is even illegal to ask.

scrabble• 13 years ago

It makes more sense for the person you are asking to lie in order to receive a higher offer.

I know I've done that before, even at the negotiating table. "I'm sorry, I can't accept this offer. I'm making more than this currently."

nahname• 13 years ago

Sounds like it would cause salaries for talented individuals to rise. You make a good argument in favor of transparent salaries.

dworin3• 13 years ago

One issue is that transparency makes discovering someone's salary easy, but discovering their value is still hard (at least for the non-employer). I haven't done all the math, but my intuition based on similar markets is that it would actually cause salaries to converge: high-quality employees are likely to get paid less, low quality employees end up getting paid more.

crazy1van• 13 years ago

I've worked for multiple HR companies who performed studies, all of which showed that salary isn't the highest priority on employee concerns. Yet, in my experience, the number one reason I lose employees (or have left a job) was money.

I think when people are polled they feel guilty about how important money is to their job decisions, so they downplay it. I always thought that was odd...its a job. You have it so you can afford to do all the fun things you really want to do. I think millennials are still figuring this out.

aestra2• 13 years ago

You just made an argument that salaries should be artificially low effectively screwing the employee out of a fair wage for their skill by hiding information from them.

And anyway, money isn't everything. I'd be willing to work for a little less money to have an awesome environment where I am treated well, have good benefits, and do great work I enjoy rather than worked 50 hours a week with micromanagement breathing down my neck stressing me out and doing soul crushing work.

Because you lose people to salary is telling, perhaps your environment isn't actually the best as you imagined, or the salary isn't as fair as you imagined.

dworin3• 13 years ago

Here is a summary of some research saying salary isn't that important for motivation: http://blogs.hbr.org/2013/04/does-money-really-affect-motiv/

However, here's a good summary that argues that pay is actually a very strong motivator, and the discrepancy comes from the fact that saying you aren't motivated by money is considered the socially acceptable response: http://www.utm.edu/staff/mikem/documents/Payasamotivator.pdf

The research about job-seeking behavior is fairly similar, although I can't find the specific sources right now. When surveyed, people say that money isn't the most important thing when they're evaluating job offers, but when asked to compare job offers as bundles of attributes, money ends up being pretty important. Part of the reason is that people under-state how important money is to them, another part is that during the job-evaluation phase, money is concrete, measurable, and knowable, while the other characteristics are very hard to determine.

It's going to sound obvious, but the real answer is that compensation is a piece, but not the only piece, of what people look for in jobs (probably about half).

bobx11• 13 years ago

You don't loose an employee because of money. You said it yourself that it's not their top concern.

After you have alienated an employee to the point they no longer want to be part of their company, why would they say anything other than it was just money? The money is the "it's not you, it's me" excuse. :)

QuantumGood2• 13 years ago

You've probably heard this before, so can you tell me the best way to ask how you spell the word meaning "the opposite of tight?"

rayiner• 13 years ago

I work in an industry where salaries are transparent. In my experience, when everyone in the industry adopts salary transparency, it just tends to cause salaries to converge to market rates. Whether this is a good thing or not depends on your point of view. I tend to think this is a good thing for employees, because it causes companies to respond more quickly to market signals that cause increases in salaries. On the other hand, this allows the most profitable companies to essentially set the market rate, which can be uncomfortable for less profitable ones.

walid• 13 years ago

Your argument doesn't hold because transparency will mean there will eventually be a state of equilibrium after you take many employees and after many employees are taken away from you. Talent snatching cannot go on forever. After that, employees will feel compensated, safe and complacent. If still you want to pay more for other employees then they probably deserve it because the market is supply and demand.

QuantumGood2• 13 years ago

Figuring out who their best people are is more than half the battle, if they are interested in moving at all. If they are, there's a lot you can do without pre-knowing their exact salary to encourage them to move.

jasonkester2• 13 years ago

Transparency sounds good from the employer perspective. You get to control the negotiation procedure (by completely eliminating it) and set salaries how you like. Take it or leave it.

Transparency also sounds good to lots of engineers who don't like negotiation, see it as unfair, and aren't any good at it. No need to bother with all that. Salaries are set. Everything is "Fair", which resonates nicely with an engineer.

But it sounds really bad to an engineer who's genuinely good at what he does and knows how to negotiate a rate that reflects that. Why would a fella leave, say, 100k on the table to go work for a place like Buffer, where even the CEO is only making $150k/year? No thanks, but thanks for saving us the trouble.

The worst thing that could happen is that this sort of thing takes over the industry. That's definitely a possiblity because it's so attractive to those first two groups, and let's face it, there are a lot more managers, introverts and suckers in this industry than guys who are willing to negotiate their worth.

I could see a whole generation of engineers coming up, expecting to be valued on seniority only, and thinking the Industry Average is the correct value for their output.

Not a happy prospect.

swombat10• 13 years ago

You wouldn't - and that's fine.

We don't have to hire everybody. If what you care about is salary above all other things, that's absolutely fine. I don't judge you for it. I care about making money too. The kind of people we do want to hire care about making enough money, and making a fair amount in relation to how the company is doing, but they care just as much about working in a great environment which has the features that transparency allows us to have.

In other words, you may be very good at what you do, but based on the above you would be a poor culture fit for a place like GrantTree or Buffer - and that's absolutely fine, on both sides.

jasonkester2• 13 years ago

Why assume that somebody asking for their market rate wouldn't be a good fit for your company?

Framing salary discussions in the context of how the company is doing is one way that employers try to manipulate naive young engineers. Same with all "8 Pieces of Flair is the minimum, but if you want to wear more, we encourage that" tactics, it tries to compare something relevant to the employee with a second, completely irrelevant thing. It's easy enough to spin those discussions in a way that make it look like we're all pitching together to build something great, but at the end of the day, it's still a negotiating tactic.

Personally, I prefer to separate salary negotiation from the rest of the decision about whether somebody would be a good fit. After all, that's a one-time negotiation that probably won't ever be revisited. A guy's skills, sense of humor, leadership ability and overall fun-to-be-around-ishness are the things that matter every day for the rest of his tenure, and are therefore a lot more important when deciding whether you want him on your team.

aestra2• 13 years ago

No. Nobody said transparent salaries mean set salaries. Transparent salaries mean MORE room for negotiation.

For example:

"You are our top performer." "Then why am I in the 10th percentile for people I work with? Can I have a bigger raise to fix that?"

"Nobody got a raise this year." (Which you can see is a lie, upper management gave themselves a raise while telling the peons they didn't have money for a raise)

Everyone understands that salaries are going to be different for different people who perform at different rates.

swombat10• 13 years ago

Definitely, though in GrantTree the process of defining how different performance is rewarded is still a work in progress. We set things up so that the team decides together how much people should be paid (that's a lot more complex than it sounds on the surface - lots of ways to do it wrong). Currently, if someone feels they are underpaid, they need to convince their peers that that's the case, rather than cozy up to their manager and then argue for an exceptional pay raise.

benmanns• 13 years ago

I could see this as being bad from both sides. Even as a relatively unskilled negotiator, I know that you can leave a lot on the table by simply not asking for it. I can see a conversation going along these lines:

    Me: I'm really excited about the company, but we need to talk about the salary.
    H.M.: Sorry, that's set by a formula. We can't change it.
    Me: Yes, but I've demonstrated that I can bring in value in excess of $1m per year, and have higher offers from 2 other companies.
    H.M.: We can't do that, or everyone will see that yours is higher.

Now I'm out of a potential job and they're out of a top performing developer, or we're left with trickery like giving the "expert" modifier for 1.3x or maybe give the title "VP" to keep me without messing up the formula. Or, you would have to give backdoor bonuses that aren't reported officially.

swombat10• 13 years ago

If the person has truly demonstrated that they can bring $1m a year and honestly believes that (as an example), then they are presumably a salesperson, and those are on (a generous) commission with very low base in GrantTree, so they will have no problem with the compensation so long as they do deliver the goods.

For other roles, how would someone argue that they can "bring in value in excess of $1m per year"?

analog31• 13 years ago

You'd like to be paid more for being a good negotiator.

I'd like to be paid more for being a good musician.

Paying somebody more for being a good negotiator would seem to make sense if negotiation were an important part of their job. Otherwise it's just inefficient.

nicolethenerd• 13 years ago

I'm curious how this internally transparent policy works when hiring new people? Do they tell you what everyone else is making before you negotiate, or only after you've been hired? Either way, that feels potentially awkward.

squozzer• 13 years ago

Keep in mind, a lot of jobs have transparent (or at least published) salaries which hasn't seemed to render negotiation tactics ineffective or, for that matter, raised the maturity level of people holding said jobs.

For example, professional athletes and political office holders.

I think a more difficult, and more desirable, target for transparency is not one's salary, but one's contribution to the top and/or bottom lines.

dworin3• 13 years ago

One issue I have with transparent salaries is that employment is an agreement between the employee and the company: it's a two-way street. Yet when you implement transparent salaries, the company is unilaterally deciding to share critical information in that agreement.

I am a huge fan of a company transparently sharing its own information with employees. Revenue, profitability, sales, etc... People like to feel like they know what's going on. But it's another to share an employee's information with other employees. There are many people (and I recognize this is a cultural norm, so it differs around the world) who like to keep their salary private, and it should be their prerogative.

MetaCosm2• 13 years ago

Exactly this! Who audits this? It is a corporate "policy" effectively, which the controlling interest can lie in exactly as much as they feel like... transparency for all people not in a place to control the "numbers".

This is an insanely one sided arrangement, that can easily be leverage to keep employees in line. "Don't you see that Jim only took a 2% raise this year, do you really think you deserve more than Jim? He has four kids!"

swombat10• 13 years ago

It's far more complex and simple than that in our case. The starting point is that 50% of revenue is allocated to "costs": overheads, base salaries, commissions and the bonus pool.

How people decide to split that up between themselves is up to them, through a process that itself is open and semi-democratic (getting more so with each round of changes).

If anything, I would say that seeing transparency as a weapon of management is really misguided. A manager could always lie and claim that Jim only took a 2% raise this year. With transparency, they can only say that if that is in fact the verifiable truth.

swombat10• 13 years ago

It is absolutely people's prerogative to keep their salaries private from other employees. They can do that easily by working somewhere else.

We don't have to employ everybody. In fact, it turns out that being fairly selective of who you employ is widely considered a good thing for startups.

userulluipeste• 13 years ago

"And, strangely enough, people react to that by behaving like adults."

Unless they don't! When access to information is warranted only to people responsible of having access, things stay secure from a wide range of angles (the golden rule of security - "deny everything by default, the access is explicit exception"). People aren't all milk and honey, they also have inner bad parts, and the usual systems we employ have (among other things) the task of keeping those parts in check (at least as much as possible). Like any other free commodity, the (useful) information can be not only used, but also abused. Knowing intimately a system one becomes able to game it. Or you think that doesn't happen or it's unlikely? Just to leave an example - what do you expect will think someone sweating in stress and efforts all day long, working close to coworker better paid with apparently less work/effort involved? That that coworker is better at what he/she does? You'd be lucky! That one will more likely think that the system is unfair. And if these kind of people won't leave right away to find "rightness" somewhere else, they (although not admittedly) will self-attune to give you the minimum for what they get (it's easy to do that given enough info) and maybe focus on emulating good visible marks (also easier when you have sufficient information to learn the system well enough). This is just one scenario from many possible other ones (driven from the human inner bad parts). I'm sorry, but I can not ignore the consequences of this kind of thinking. I lived in such environment, I felt it, and I also saw it going down. Maybe it doesn't ring to you, but this "total transparency" is just a juicy piece of communism.

swombat10• 13 years ago

Just to leave an example - what do you expect will think someone sweating in stress and efforts all day long, working close to coworker better paid with apparently less work/effort involved? That that coworker is better at what he/she does? You'd be lucky! That one will more likely think that the system is unfair.

As I mentioned in another comment (and should have mentioned in the article), this is a natural consequence of transparency: it demands fairness. There is nowhere for unfair compensation schemes to hide with full transparency.

So in your example, the underpaid worker would naturally demand to be paid fairly. And the response to that better be something like "yes, this is how we'll do it" - otherwise, you're right, they will leave (a good call, if they're working in a company that treats them unfairly). This is definitely a plus for the employees.

From your username you sound Romanian (I was born there, my parents left just after I was born and I grew up in Switzerland). I know from my parents that Romania under communism was a pretty horrible place. But I also know from talking to them that it was a place that was full of fear and mistrust. We're using transparency to increase trust, and it works. Sure, from one angle, if you squint the right way, it looks like some sort of "communist" nonsense to open up all this information, but I can assure you that at least at the scale we're at, the effect is to increase trust and empower people, not to reduce them to fearful subjects of the state.

Why transparent salaries make sense

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