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« Why Socializing Organizations Matters to Me | Main | The Deep Bench of Social Organization Management »

February 12, 2009

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David Locke

As for exposing compensation, it is all there in the quarterly reports once you go public.

I think that cadidates for jobs should be given a tour of the company's ego zoo.

Keith Lauby

I wholeheartedly agree with half of what you are saying here Rachel. Our focus needs to be on the value individuals bring to an organization. Shine the glaring light on their ROI and demonstrate in great detail their achievements for a company. And don't forget the shortfalls too. But, the actual compensation package should not be part of the examination. After all, if someone can't demonstrate their value, does it matter if they're getting millions or just a dollar?

Rachel Happe

David - thanks for pointing that out - I just amended my post, I meant that everyone's salary should be made public. And for private companies who want radical transparency, this goes for them too.

Keith you are right in one sense, it doesn't matter for poor performers. But in a relative sense showing differences in salary between two people (who may both be performing adequately) exposes who is likely to have more influence within the organization because the organization clearly values them more by paying them more.

chris Jangelov

This system is used by some sucessful companies owned by the employees. An open discussion creates over time reasonable compensation levels most people can accept. With it comes a sense of responsability for the business and an insight that it is the shared effort that makes the success. No one could earn 10 times more than some one else if they were on their own. Good sales people need good products. Everyone need a good HR department. And so on, including ansering the phone, fix coffee and clean the floors.
So there will be a balance that takes length of education, work hours and other aspects in account. The differences in compensation will lessen.
Then the top brass will lose a substantial part of their income. They are just representatives doing their part of the work. (Reason no 1 why this idea is not appreciated)
If the business goes well there will be profit. Today these resources is extracted by investors/shareholders to an extent that often exceed what is good for the company in the long term. So R&D will be prioritized and wages overall will rise. Investors will lose. (Reason no 2 why this idea is not appreciated)
If a system like this was to be common there would not be so much room for the kind of speculations that works so well in moving money from the many to the few by pumping up bubbles, take home the gains and let the taxpayers pay for the cleaning up. (Reason no 3 why this idea is not appreciated)

So I kind of like the idea...

Laurent

I like the idea, but sadly I don't think people will consider it viable, at least not with big companies.

First of all you have cultural differences from one country to another. Compare an American company to a Japanese - The ideology, the compensation model and evolution in the company are all different.

Another reason is that companies benchmark the market and then decide how to pay the employees. If the employee discovers that he gets 60% of the market average...
(and sometimes they do)

Also, there are salary differences (sometimes huge) between company functions; read blue collar vs white collar. Sales vs marketing vs finance.
We all know these exist and they are tolerated. But if we learn that colleagues earn $863/month more just because they're in another department and still doing more or less the same job...

Lastly, people often negotiate their compensation before joining a company. If you introduce a rigid compensation structure, they might prefer going somewhere else. Competent people running for money don't care much about values.

Small companies can more easily implement such transparency, but larger ones with fierce competition will require long transition phases I guess.

Peter Kim

Penelope Trunk wrote about this last year: http://blog.penelopetrunk.com/2008/07/11/how-to-figure-out-how-much-you-should-be-paid/ and was also interviewed on 20/20 about it.

Rachel Happe

Chris, Laurent, Peter - Thanks for stopping by and adding so much to the conversation.

Lots of considerations and, like I said, I don't think this is viable or attractive for most companies right now...but I think it would focus the company on a discussion of values and eqaulity.

A lot of behavior in organizations today is driven by insecurity - and part of that is that employees don't really know where they stand relative to everyone else and can't even evaluate whether their values really align with those of the organization because they can't know. That insecurity won't be completely solved by open bookkeeping but it will make it very clear how they stand.

And it is more then just salaries - it's also customer fees, investments, and other costs. For public companies this is generally available at a macro level but I suspect not broken down in the operational groups.

CV Harquail also added that transparency of data is not enough - it has to be put in an understandable format. I couldn't agree more. See her comments at: http://authenticorganizations.com/

Interestingly, last night at IgniteBoston5 Jacob from eHana (http://www.ehana.com) was talking about having open books there and some of the challenges.

Interesting theme to watch.

Francine McKenna

Hi Rachel,
Pay transparency is already part and parcel of being in a union. Unfortunately, it also means merit matters less than seniority and strict definitions of job responsibilities when it comes to setting pay. I'm as pro-union as an accountant and business executive can be, however...

Transparency for actual compensation data and disclosure of mechanism for setting compensation are warranted. I'm all for disclosure because it promotes accountability, but that doesn't mean everyone is equal, even in the same job. Equal opportunity I am all for. But skills, abilities, experience, and ambition are not equal at any point in time. Bonuses and other incentives are important to motivate and to reward, and it's transparency that makes sure they reward the right behavior and don't become disproportionate to contribution.


Rachel Happe

Hi Francine -

Thanks for the insightful comment. I am not advocating equal pay at all - people should get rewarded for all sorts of things including education, ambition, bringing in revenue, certain skills that are scarce. I am just advocating that companies make it clear what they will reward and make the schema transparent...and make people's salaries transparent so that everyone knows where they stand.

I'm not a socialistic - we all make choices - I'm just advocating that our individual choices and the choices of our organizations be a little more transparent.

Rachel

Isaac Hazard

Very interesting post and I entirely agree that without exposing the money trail you can't expose the power dynamics.

Unfortunately there's a big factor in salaries and any pricing structure that is unrelated to the real value of the product being purchased or the employee being hired. That is to say that market conditions can create very different market values for the same commodity at different times.

Ultimately there are so many factors that determine market value that it may not be feasible to make them all transparent and partial transparency might lead to inaccurate assumptions about the real value placed on the product or person.

Or maybe it's just that my mother told me never to talk about money and I'm just graspong at straws to justify old-school puritan thinking....

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