Something great happened last week. Jamie Davis of HCR Software, one of our readers, suggested an article that he felt all of us at Compensation Cafe should be aware of.
We love our readers! And what great stuff -- a real opportunity to share and discuss a "war story" about pay transparency over coffee at the Cafe.
The article is a recent interview by Jen Wike Huger with a start-up star in the open-source code world. To give you a clue about that world, the conversation began with very wise insights into how to avoid burnout. Here's the context of the interviewee's, Leah Silber's, world. She's CEO and co-founder of Tilde, a small open-source training and consulting startup. Think warp-speed change and resilient flexibility. Think talent cravings so strong no amount of chocolate could ever put them to rest.
Leah runs her business based on a philosophy of what she calls, "practical transparency." And, to show how clear-minded she is about her approach, she points out:
If nothing's a secret, then everyone knows what's up with the company in one of the most important ways: the finances. Everyone can understand the big picture impact of the decisions they ask you to make. Assuming you're making the right decisions, it means a lot less questioning and needing to obscurely justify hard financial choices. The bottom line is right there and everyone can see it.
Here's a goal that every company that espouses pay-for-performance can relate to, so let's listen closely to her lessons from the line (no doubt, without a Human Resource department).
When asked to explain why practical transparency is so important, Leah began by talking about pay transparency. She gave a number of reasons for its purpose in a small, young company:
" . . . early on, when you're small, every new employee is an opportunity to realize that your salary calibration isn't competitive with the market. If a new employee pushes back, you might want to give them more money, but you also need to raise the salaries of other employees. Otherwise, early employees will perversely get paid less, as a group, than later employees."
So one of the reasons she believes in pay transparency is that it avoids compression, keeps her salaries competitive in a hot, hot, hot marketplace. And, going back to the earlier quote, one would imagine her financial philosophy involves setting aside enough budget for chasing the market in this way.
In fact, one of the benefits of pay transparency is that you aren't tempted to give prospects a windfall offer just to get them onboard, in Leah's experience. Bidding wars, in her mind, are not only a bad move but also unfair to the rest of the employees.
Another benefit to transparency is that it makes salaries easier for her to negotiate because a straightforward number is more likely to get people off to a good start than eyeball-to-eyeball bare-knuckles negotiating.
Lots to think about. Leah's thoughts and experience are so different from everyday compensation wisdom, I really thank Jamie for bringing the interview to our attention. In fact, many of Leah's experiences turn our profession's beliefs on their head. And yes, her companies have been very small -- but face the facts, most departments in huge companies are, too. So be sure to check it out. There's good stuff there about executive compensation, incentives and employee development, too.
Thanks for posting. I read the original article and it was very insightful. Companies CAN retain their top talent IF they can get comp right. And HCR Software is passionate about helping companies do that with compensationXL.
Posted by: Kevin | 10/07/2015 at 09:53 AM
Gee, Kevin, Compensation Café works very hard at being a non-commercial space. We love to talk about real world stories, though. Thanks again to Jamie for the suggestion.
Posted by: Margaret O'Hanlon | 10/07/2015 at 02:36 PM
Good article, and nice treatment by Margaret. Not sure how I feel about the ultra-transparency approach - but it is an intriguing notion.
I'll openly concede to something of a love-hate relationship when it comes to pay-setting. I really loved (okay, liked a whole lot) our approach with my former employer, because it was more pragmatic. It acknowledged (implicitly) that we probably would not be able to hire every single candidate that we wanted to. It also was grounded in a philosophy that the offer we made to a candidate represented an amount that we felt we could afford, and that the candidate should reasonably be willing to accept. It didn't always work, but it did the majority of the time.
Pay-setting with my current employer is squarely in the hate column, and could charitably be characterized as a "hot mess". And sadly, the characteristics that spawn that hatred are all fixable. There's just no transparency or willingness - to drive those changes.
Posted by: Chris Dobyns | 10/07/2015 at 04:01 PM
The key descriptor for effective employee compensation practices used to be "systematic." Without science, being systematic made your practices defensible. Being systematic meant you could bear scrutiny.
It was interesting that Leah, who could have just accepted salary volatility as the status quo in a start up found solid business reasons why it would get in the way. Lots of start ups love the drama of the wild and crazy salary mash up.
Sigh, Chris.
Posted by: Margaret O'Hanlon | 10/07/2015 at 06:38 PM
This other http://www.wired.com/2015/05/im-terrified-tell-people-much-make/ article on pay transparency also touches on similar pros and cons as seen by non-comp people. Their views are truly helpful for good discussions like this.
My biggest worry about the effects of transparency is how much easier it might make it for outside headhunters to raid your talent. Although it isn't only about bucks, of course.
Posted by: E. James (Jim) Brennan | 10/08/2015 at 01:43 AM