I had an interesting conversation with a reporter recently. She was fascinated by the idea of total pay transparency. She'd had conversations with a few of the now well-known start-ups who've gone public with their open salary models -- SumAll and Buffer, among others. With the rave reviews they gave their efforts and the long list of virtues they touted, she couldn't help but wonder: Why are these open systems so popular with start-ups and less so at bigger established companies? What are the obstacles stopping pay transparency at bigger employers?
My short answer: Legacy.
To me, one of the biggest obstacles that established employers face in what may become the inevitable march to pay transparency is their salary legacies.
Salary decisions (both good and bad) are, for the most part, forever. They stay with you as long as the employee does. Not only that, but they typically compound annually. As a result, many established companies have employees whose salaries reflect circumstances and conditions that were in place five, ten, even more years ago -- but have little bearing on today's reality. Some of these salaries may trace their roots back to a merger or acquisition involving another company with a very different compensation philosophy. And sure, some of these salaries invariably reflect poor, even unfair decisions made by some manager.
The point being that there is baggage in any organization that has been around awhile, and it isn't always or even usually baggage born of ill intent. But it's there, and it puts the established employer in a very different place than a start-up, where leaders can embrace pay transparency with a relatively blank slate. And cleaning up salary baggage is something that must happen incrementally -- unless you're willing to just mark everyone to market, hack off and resdistribute accordingly. Most employers are not.
All of this so far, given the Cafe's readership, may be preaching to the choir. My point, however, is that this is not exclusively a look-back problem. Given the speed of business change these days, we are not only continuing the cycle by creating the baggage of tomorrow today, we are doing it with ever greater velocity. How long until today's hot skills job becomes yesterday's news? How long until today's sparky new venture division (the one that's bringing talent in at tiptop-of-the-market prices) becomes tomorrow's cash cow, serving merely to fuel the next product/service leap?
Many of us have already learned this the hard way and are approaching our work through the prism of those tough lessons. More and more, we are experimenting with non-base, variable approaches for addressing these transitory demands. It is good that this reality is beginning to sink in.
Going forward, as the pressures for transparency ramp up, it is going to be important that we create pay solutions that not only address today's business needs but will stand up to scrutiny for as long as their "trails" extend.
We certainly have our work cut out for us!
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 to a range of client organizations. Ann and fellow Compensation Café writers, Margaret O’Hanlon and Dan Walter will soon be releasing a new book on communicating compensation - stay posted! Ann serves as President of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and is a member of the Advisory Board of the Compensation & Benefits Review. She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.
Image "Business Woman Off Blocks" courtesy of Ambro / FreeDigitalPhotos.net
Ann, you have illustrated why we should abandon "merit" pay, which simply annuitizes past behavior on the basis of performance appraisal schemas of (at best) questionable reliability and validity.
A far better and more defensible approach, in my view, is to pay all similarly-situated employees the same market-based wage, with separate "hot-skill" premiums if, when and as warranted.
The handful of truly outstanding performers can be recognized with enhanced variable pay, fast-track promotion opportunities, more training opportunities, and assignment to high-profile next big/next big thing task forces and projects.
Posted by: Tony Bergmann-Porter | 06/14/2014 at 08:29 PM
Tony:
That may indeed be where this whole transparency thing (along with other "trends and developments") are taking us. One of the things we discussed in this call was the likely outcome of transparency on pay decisions - that being greater risk aversion around differentiation based on performance results (often, as you note, of questionable reliability and validity) in favor of things deemed more measurable and reliable like skills.
Appreciate the comment!
Posted by: Ann Bares | 06/17/2014 at 07:05 AM