Thoughts on the New "Open Salaries" Company

Dubbed the "warts and all" approach, the Wall Street Journal recently profiled the trend, particularly among start-up firms, to open up information that has typically been closely held -- not only company financial and operating data but also information on individual hiring decisions, salary and bonus detail and employee performance appraisals.

The experience of New York based startup SumAll provides one example of the phenomenon:

Employees at SumAll, a Manhattan data-analytics company, can click on a shared drive to peruse investor agreements, company financials, performance appraisals, hiring decisions and employee pay, along with each worker's equity and bonuses.
 
SumAll Chief Executive Dane Atkinson says the company was launched as an open enterprise. He and his co-founders reasoned that people work more efficiently when freed of doubts about salary, and better understand their individual contribution to the whole group.

As a sidebar comment, it is interesting, as always, to note how much of what is "new" actually isn't.  Think back to the dawn of open book management and participative pay practices like gainsharing and Scanlon plans, which seem to have fallen significantly out of favor.  In a sense, what we're seeing now may be a new version of these movements, a corporate transparency 2.0.

I admit to having conflicted feelings about the transparency movement where it entails revealing individual pay and performance information.  I admire and appreciate the spirit and goals that often lead founders and owners in this direction: to build a different and more noble kind of organization, to be, as SumAll's Dane Atkinson says, "the counterpoint to the corporate culture that's out there."  But I also have experience working with a number of organizations who have taken this leap, and so have had a front row seat to some of the pitfalls and problems that can result.  That isn't to say (I think) that it can't be done well and successfully; however, I have learned that certain conditions and ground rules must be in place to navigate this sensitive road and end in a happy place.

A few thoughts, then, about some of those conditions and ground rules:

An investment in education.  Be prepared to invest time -- lots of time -- in educating, explaining and selling.  As basic business literacy is a prerequisite for understanding and correctly interpreting  financial and operating information, so is a good foundation in pay principles and practices necessary for people to understand and correctly interpret information on how they and their colleagues are paid.

An investment in structure.  If you're going to open up salary information (for example), you'd better have a reasonable belief that salaries have been set and managed in a manner that is consistent, fair, explainable and defensible.  I find that the move to "open salaries" often pushes a small organization into formal pay tools and policies much more quickly than the norm, and this means an investment in the time and resources necessary to establish and maintain said tools and policies.

A balance of transparency.  I've encountered many organizations who open up company financial and operating information without taking the step of making individual employee pay data and decisions public.  This, in most cases at least, seems to work.  What doesn't seem to work quite as well is the situation where the company opens up individual pay and performance information, but keeps company financial and operating details under wraps.  In the spirit of "if you show everybody mine, you'd better be prepared to show me yours too", this is an imbalance in transparency, one that employees catch on to very quickly.  Many -- though by no means all -- of the issues I've seen erupt in "open salaries" companies have their roots in this kind of imbalance.

What about you? Anybody out there who can share their experience with, or at least their perspective on, salary transparency?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  Ann was recently named President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and has joined the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares. 

Creative Commons image "The Open Window" by soham pablo

Comments

[Jacque Vilet]

LOL --- Does SumAll post ALL employees' salaries/performance ratings or just those below Director/VP? I know the highest paid execs have their package reported in 10Ks --- but not all. So??? Might be a good counter balance to what Comp Committee OKs --- at least to raise questions.

Even more so than salaries posted --- the biggest problem in my opinion is performance ratings. By showing Employee A's rating that is low other emmployees may start discounting his/her opinion, suggestions, etc. And it would be even more of a problem if the low rating is for a member of management.

Salaries are more objective and can be "cleaned up" -- i.e. make sure there is no internal equity, etc. --- but ratings are very personal. Just not sure what benefit there is to showing ratings.

My 2 cents.

[E. James (Jim) Brennan]

Strongly agree, particularly with the observation about open transparency driving disciplined education, structure and balance. You must know what you believe before you can expose it, and a wise person will organize and rigorously test their understanding and approaches before they communicate, using comprehensible terms that anticipate critical challenges. Just like you always learn most about a subject when you teach it, preparing to publicly present complicated matters makes you check everything for credibility, completeness and clarity.

That said, the potentially problematic performance appraisal sharing part gets easier when it meets those same standards. Even public bodies tend to make "Personnel Matters" exempt from Sunshine provisions. OTOH, some have no formal rating system or an extremely simple one that minimizes controversy.

[Mark Spencer]

I also agree with the cautionary tone regarding full transparency of pay and performance reviews. In addition to the training that an organization will have to be prepared to put people through, it may be worth noting that the likely success of transparency will be related to the flexibility of the compensation philosophy. To put it another way, the more similarly emplyees are paid (the closer a company is to having 'job rates' and high levels of internal equity) the easier it is to be transparent because there are fewer relative differences in pay between individuals. Pay practices that are more sensitive to the market value of individuals make it more complicated to get employees to accept the inevitable differences in pay as 'fair'.

[Ann Bares]

Jacque:

Good question. I naively assumed all employees. If it was only those below a certain level and Directors plus were exempt (i.e. "transparency for thee, but not for me"), then I go back to my imbalance point. Never gonna fly.

Agree on the performance reviews. I didn't even get into that in my post (only so much you can say in a 700 word blog post), but that is a whole 'nother can of worms with its own complete set (as you note) of potentially problematic consequences.

Jim:

Yes - transparency does tend to raise the bar for structure, discipline, etc. Like you (and Jacque), I see the performance appraisal sharing as having its own problematic possibilities that I didn't even touch upon.

Mark:

Very good point, that transparency may be easier and more workable when the employee/job population is more homogenous with fewer relative pay differences. An organization with a mix of skillsets, including some that are in high demand and some that are less so, will have a lot more education and explanation to address.

Thanks all for the comments!

[John A Bushfield]

Ann - I appreciate your thoughts, as always. That said, some of your cautionary observations apply regardless of transparency or lack thereof.

I believe compensation transparency is inevitable; yes, there will be some bumps in the road to get there, and some of the older employees may have difficulty with the exposure, but the new breed of employees will demand it. Its a matter of trust (sorely lacking in many organizations), which is the linchpin to an engaged workforce.

The pioneers of this practice have a head start on the changes necessary to be successful in the new millenium. Others who ignore it or otherwise resist it do so at their peril.

[Ann Bares]

John:

Great point - that the "ground rules" I've suggested make sense and apply regardless of the transparency level. I don't see them as unique to the "open salaries" environment, rather I believe they take on particular/heightened importance in that environment. Particularly as this development seems to be gaining its most notable traction in startup companies, where the business is evolving at an exceptionally fast pace and the time/energy of founders is stretched so thin.

Thanks - as always - for your observations and thoughts!

[Margaret Wright]

I find the conversation amusing, because I work in municipal government where EVERYONE's salary & performance evaluations are open to the public (not just to other employees). "Open salaries" is just the way we do business. There are two effects: we are mindful of fairness & logic in salary decisions; and because we are SO mindful of fairness, some exceptional performers are not compensated exceptionally (we are quite risk-averse).

[Ann Bares]

Margaret:

I suspect more than a couple of your public sector cohorts are smiling the same smile...

Great observations - that the requirement for transparency drives efforts toward logic and fairness in decisions (and probably the structure and policies necessary to achieve this) and (and I find this particularly interesting) also a potential aversion to risk.

Thanks for sharing.

[E. James (Jim) Brennan]

The risk management pressures Margaret reports at public employers is quite understandable, because the bosses there report to elected officials sensitive to any negative public feedback. While I would not go so far as to claim that there are no such concerns about shareholder/owner reactions at for-profit firms, they really do exhibit more "courage" about bluntly citing "managerial discretion" to run their enterprises as they choose. Bottom line: company managers tend to have more freedom to manage and to take risk than their public peers, I fear. But, in the absence of public transparency requirements, they find it easier to keep secrets and hide both good and bad decisions. See the "press release" at "public sector pay compression" for more.

[Mercedes McBride-Walker]

Call me naive: I didn't realize the government was publicizing performance ratings. I knew about salaries, yet the public performance ratings are new to me. I share some of the same concerns regarding publicizing performance ratings, especially since - generally speaking - it is the manager's personal point of view. Perhaps in an organization where calibration of scores takes place across the whole of the organization is there a better check and balance. Yet where calibration is absent or managers are really left to their own discretion and definition of what makes a 3, what makes a 4, etc., I could see a myriad of problems in publicizing performance ratings. I am personally for compensation transparency - for the accountability of it, for the credibility, and for making it about a dialog rather than a fortress. I'm now going to be marinating on the idea of publicizing performance ratings and whether or not the same effect might occur: accountability, credibility, and dialog. Very interesting!

[Ann Bares]

Jim:

Interesting observations; the transparency requirements door seems to swing a little both ways, doesn it?

Mercedes:

This was news to me, too. Again, I have bypassed discussed of transparency for performance ratings in the post and the comment stream, because I think that is a whole 'nother thing than pay transparency.

Thanks for the comments!