Monday, 8 September 2008

The Muddy Waters of Salary Transparency

Recently there has been much comment and debate around the issue of salary transparency in organisations. The New York Times columnist Lisa Belkin published an article on this very subject in August. Like many arguments in the world of employment there are pros and cons as you would expect. For those on the pro transparency front the case is a simple one.

1. Salaries will become more fair. The system gets a chance to adjust itself. (This argument is often given a more inclusive flavour with a smattering of diversity thrown in for good measure - "We will be able to see that women are paid fairly" - I've not heard this salary/diversity measure argued by any of the women in my organisation, and to me it smacks of validation)


2. It will be easier to retain the best employees because they’re more likely to feel they’re getting a fair salary.

3. The pressure is on the people with the high salaries to earn their keep. Everybody has to pull their weight - the higher the salary, the larger the weight.

4. Secret salaries can create paranoia and mistrust between peers (is he getting paid more than me?)

These are an amalgam of points, by no means exhaustive, taken from internal discussion and the wider blogosphere. I think the majority of the pro-transparency arguments are covered here. They are in no particular order and I hope to expose some of the counter arguments and the mis-thinking behind them.

Putting it right out there in the open I am against salary transparency. I feel there is little to be gained, when an organisation has reached a certain size and covers different geographies, in the widespread disclosure of salary information. The arguments in favour of keeping this information private far outweigh the perceived benefits, and in my opinion too many of the people arguing for the release of this information use equality as a soapbox for their own issues with their personal salary. As you will see, I postulate that this is an example of a very different outward agenda for what is essentially a personal issue.

The first and most important part of the argument against salary transparency is one of privacy. The advent of the Internet has meant that a wealth of information is already freely available to the casual surfer. With one reasonably refined Google search I'm confident you could find my mobile number, home address and probably my now dead pet Gerbil's name*. Is this a good thing? Some would argue yes however there are some things I might not like to disclose - salary is one of those things. People may say it’s my bourgeois middle-class white upbringing that leads me to think it impolite to discuss salaries but I don't believe that's the case - as a recruiter I discuss salaries everyday, constantly and all the time. I am happy to talk about this in exact figures and not to think myself crass for doing so. It’s a taboo I’m happy to break. However I think there are genuine relevant reasons for not disclosing one's salary. Despite any organisations attempts to maintain a flat structure people function through the constant comparison of themselves with others - in knowing a salary structure of an organisation do you immediately assume that those with a lower salary are less valuable? I'd make the challenge that yes as salary would be the only insight you have into the role played by an individual in that organisation. In my opinion salary is not a measure of value. If I'm bleeding to death I'd wager I'd not be concerned with the salary of the paramedic stemming the tide of blood, but his value at that moment would be priceless. Nurses and Care Givers are paid less than Investment Bankers and Police Officers less than the latest “celebrity” to leave the Big Brother house – value and moreover personal worth should never be measured in pounds, shillings and pence.

The issue of “fairness” is an interesting point and in certain organisations I feel would apply. If we take the example of a manufacturing plant and compare two workers performing the same task on the same line at the same time – then it would be unfair of an employer to make this same role tiered in terms of pay, I’d agree with that – the exact remuneration alters when one or more of these factors changes e.g. a worker on a night shift can expect to be paid more for working anti-social hours, a worker performing a more highly skilled task can expect to earn more and so on. However, within most modern organisations the nature of “role” has to be taken into account. You might have the same overall “function” e.g. both lawyers but for the individuals in question the “role” and responsibilities thereof may differ vastly. There are increasingly issues around this “same-ness” in modern roles, are there really any roles that are exactly comparable? In an organisation like ThoughtWorks where we have transient job titles and with a lack of public sector style concrete grades we are left to consider each individual separately. So how does an organisation decide what aspects of an individual’s performance and role are worth more – taking the world of IT consulting as an obvious example. What do we look for in potential ThoughtWorkers? What do we value? As a few examples I can say those people who are passionate about their jobs, those that commit to open source projects, maintain a blog and partake in the ongoing learning offered by more informal gatherings like our “Geek Nights” and “Ruby Tuesdays”. These are extra points that may add “value” to your employ by the company. However as I mention “value” doesn’t equate to “salary” as an exact transfer.

In the discussion of salary that I have with a potential new hire I always ask two questions. They are, “What is your current salary?” and “What would you like to earn?” The differentiation between these two sums allows me to gauge a candidate’s perception of their own value, in short their own marketability. This is an important consideration. It’s Marx that states that in working or allowing the “exploitation of their labour” an individual in a Capitalist state is in effect selling their labour to their employer. The “price” they accept to take a role is their salary. The scale of difference between the two numbers offered will also give a recruiter insight into their attitude towards the current employer and often their knowledge of the current market. I will be first to admit that anyone wishing for a £20,000 pay hike is going to have to demonstrate effectively what their reasoning is for wanting that large a differentiator, what are the factors for justifying it? For employers salary has a memory. The majority of standard reference requests will ask for a confirmation of a stated salary.

Salary transparency as a means of retention is again a limited argument. The assumption is that as an employee either the primary or ultimately the sole reason an employee stays with an employer is because of salary. We are all hopefully aware that this isn’t the case and that many employers offer a wealth of benefits and concessions to a work life balance that are not quantifiable in the simple measure of basic wage. Looking at those labour markets where salaries are substantially higher e.g. Investment Banking higher salaries are oftentimes referred to as “golden handcuffs” or “gilded cages” effectively these employers are having to buy the loyalty of their skilled staff in the face of the lack of other trade offs like work life balance or flexible working times. Is it the transparency of salaries that keeps employees in these locations happy and working or simply that the salaries are sufficiently inflated to keep them from asking (or giving a damn about the answer)?

ThoughtWorks is a developer of bespoke software solutions and a keep proponent of the Agile and XP methodologies. In designing software we ask our clients to use a standard construction in describing the purpose of a feature for their new software, referred to as a “story”. “As an X, I want to…, So that…” we use this to hold up requests for scrutiny, to evaluate them in isolation removed from the often emotive responses end users may have. So, as an employee of X company, I want to know all my co-workers salaries so that… then I think it all falls down, if there’s no action are you in a better or worse position knowing than not knowing? How does knowing this information inform your actions or your interactions with other employees? It’s my feeling that most people want to know the salary information of their peers to use as a jumping off point into their own discussions around their personal salary. However, the information of peer salary in this discussion is largely irrelevant – instead we should be thinking of the wider labour market in our current geography. To gain salary information as an individual you don’t have to piece together pages from the finance teams shredder or lie in wait in the dumpsters near the office, salary information is freely available on the job boards and advertising available to all. Recently there has been a glut of websites launched aiming to catalogue salary information for casual viewers. Glassdoor.com is a recent newcomer to this space and provides, amongst other things, salary information for staff of major corporations, and yes ThoughtWorks has a presence, although I can confirm that the pay scales are incorrect at present. Provided more people join and enter their information truthfully this scale will normalise over time.

In all of these discussions the culture of transparency is held as the ultimate goal of an organisation and I’d wonder if this is the case. In my opinion it is a culture of trust we should strive for. Employees who feel they are paid fairly, because they have effectively sold the “exploitation of their labour” with full knowledge of the market in which that labour is sold will be better able to realise their own position and not be concerned with how Bob was able to afford that new Corvette, but instead trust they are given a fair salary based on their own personal circumstance and that the company they work for will aid them in their strive to grow and develop as an individual – salary, the nuts and bolts measure of their value, will become secondary.


* For those interested parties the Gerbil in question was named "Nibbles".


Also for those people disappointed not to find a tribute to McKinley Morganfield a.k.a. "Muddy Waters" of Blues fame I attach a picture by way of apology. Go listen to him here.


10 comments:

Marco Abis said...

In "Predictably Irrational" Dan Ariely writes, among other things, about this very same topic.

Real-world examples at hand he shows that salary transparency has nasty effects on people :-(

http://www.predictablyirrational.com/?page_id=6

Jason Yip said...

"Salaries are a sensitive subject, but open communication is important enough that it should be tested, even if there is a price to pay. It’s at the very heart of a shared culture. If discussion of salaries is taboo, what else is off limits? The only source of power in an organization is information, and withholding, filtering, or retaining information only serves those who want to accumulate power through hoarding. Once an e-mail is not circulated, or if it is edited, then illegitimate pockets of power are created. Some people are privy to information that others don’t possess. Remove those pockets, and a company removes a source of dissatisfaction, bickering, and political feuding." -- Ricardo Semler, The Seven Day Weekend

I have nothing more to add to that.

Matt said...

"Remove those pockets, and a company removes a source of dissatisfaction, bickering, and political feuding"

It's been argued that Semler's corporate structure leads to the treatment of employees as adults not children, in this quote his motivations for doing so are the expectation that employees will behave like children. Should an organisation make concessions to remove policies that may exacerbate negative behaviour or contrary should it in fact trust it's employees not to involve themselves in "bickering, and political feuding" from the outset? I'd like to think it was the latter and in the culture of trust that if employees are the right choice they will be more concerned with their role and responsibilities than "bickering". All organisations I've worked with have a facility for voicing discontent with salary and none of them have required an all encompassing knowledge of a colleague’s salary before voicing a concern.

Anonymous said...

Only having salary information about the wider job market isn't that useful because it's so hard to judge one's relative position within it. You can only really compare yourself to your colleagues.

Jay Padinjaredath said...

Matt,

Putting it right out there in the open, I am for salary transparency.

I guess we agree that the absolute salary has no meaning to an employee, or it does only to an extent. The relative salary plays an important role, or so research says.

I dont quite buy the privacy argument, many public and government organizations worldwide publicize salaries. They seem to get on pretty ok. Also, making an individual's salary public within a company doesnt mean you could find it by googling for it.

Your second point talks about value, or perceived value. My argument here is that within a company like ThoughtWorks if someone like Martin Fowler were earning 3 X my salary, I would say "cool". But if a peer who does the same stuff I do is earning $10K more, I would wonder whats wrong with me. I always think of it as those who are demonstrably out there, (and you have touched on those qualities) and the others who do their job adequately. Perhaps subjective.

In discussing salary transparency, you have avoided talking about the real problem. How does an organization ensure that the salary it pays its employees are equitable? (if not truly equitable, then at least perceived to be) Can we guarantee that within a band, we will not have a variance of x%? Can we guarantee that no executive in the company will earn more than x times another? Can an organization guarantee that a new hire is not paid more than an employee because they came in with a salary higher than the org standard? Can we make sure that the org can afford to pay the consultant above the industry standard? (you do hire the brightest) Can we have a feedback mechanism such that we don't "carry" certain individuals who are perceived to add little value?

The call for a transparency in salary is the lack of the above. Fix that and the call for it will seem softer to you.

I'm keenly waiting for a post on performance management now. :-)

Francisco Trindade said...

Well, since I've been in the other side of this discussion most of the times, I felt necessary to reply.

The full reply became a post, so if you want my whole opinion, follow the link:
http://blog.franktrindade.com/2008/09/09/whats-your-value/

But since I'm writing here, I might as well discuss some points :)

Privacy

I agree that employee's privacy should be respected, and if they dont want to talk about their salaries, ok. I also dont want to post salaries on the internet, but just to foster an environment where people talk about their salaries and ask others about it, without being a taboo.

Job "same-ness"

Employees are adults, and they can understand that positions are different, and experiences too. And if you ask "how does an organisation decide what aspects of an individual’s performance and role are worth more", I should answer that it does already, when it assigns a salary to a specific employee. The only thing missing is that the organization should be able to explain to the employee all these factors and why someone is making more money than him. If it can't, than I think you might agree that we have a problem.

Personal x Colleagues salaries

Again I agree that I would like to know everyone's salary to discuss mine. and that is because, as some persons replied, the absolute value of my salary has no meaning, or much less, than the relation to my colleagues' ones.

And to finalize, salary discussion is not "bickering" in my opinion. Employees will be always concerned about their salaries, and openly talking about it with the company, having other employees as parameters, is the most important talk an employee can have to feel valuated in the place he spends most of his time, and that should be the company's final goal.

Cheers,
Francisco

Domingos Neto said...

I work at a company that doesn't have salary transparency and I am 100% satisfied with it.

I think salary transparency is good for average/weak employees, because it will even out the salaries at a given position.

Great developers will lose most of their bargaining power, because the company will be able to say 'I can't give you a raise, you are already in the upper limit for your position'.

Salary transparency looks like a Socialist/Unionist policy for me. Unions are all for salary transparencies, and I don't see Unions with good eyes :)

Darren Hobbs said...

Last time this topic did the rounds about 3 years ago my suggestion was for the company to definitely not reveal everyone's salaries (people share that information with those they want to already - to many employers' horror).

What I think should be done (and still do) is that everyone should find out who their 10 or 20 nearest neighbours are. Nothing more. You wouldn't be able to tell how many of them earned more or less than you, just who in absolute terms had a salary closest to your own.

Anonymous said...

I'm in favour of salary transparency. Or, perhaps salary translucency, in the way that Darren Hobbs suggests.

Very personal reasons - I am female, and I used to get Girl Pay. By which I mean I was the only techie girl in my dept, and I eventually discovered that all of the boys were paid between 30-100% more than me for doing the same work. And I got great annual reviews, so it wasn't performance. I just got lumped in with the other girls for pay purposes - and they happened to be lower paid non-techies. It was a definite trend - female managers also got paid less than the male ones.

If I'd never discovered that, I would never have quit and moved elsewhere. I ended up in a much much nicer company, much better paid, and feeling much more valued. And I found that actually, despite a huge increase in pay, I am still one of the highest performers in my group - I am a lot better than I ever thought I was, and I wouldn't have realised that had the pay disparity not prompted me to look elsewhere.

Александр said...

Matt, I suppose you were on both sides of the barricades – as an agency recruiter trying to push salary for a candidate as high as possible and as an in-house recruiter trying to lower a new hire salary down as much as possible. Two completely opposite targets functions. Could you give your professional view on the question below?

Almost every recruiter asks me that sacred question “What is your current salary?” I personally find it very offensive and unfair at the first place and secondly serving only one purpose – to have an extra argument in pushing down the salary figure in negotiations. It could not be offensive at all if additionally to “What is your current salary?” I would hear “In our company we have XXX to YYY range for this position and based on your experience and current salary we offer you ZZZ because according to our policies we don’t allow a pay raise for new hires more than 10% (as an example).”. This could be fair but of course no one tells you this because of the reason number two above. And usually I hear something ridiculous like “This information is for clarity and transparency in this question.”

When I was a bit younger I did this mistake revealing my current salary but now I always calmly say “no, this information is confidential until we step into the formal offer stage”. Also a quick online research will show the current market rates in a second. And the funny thing is sometimes I deal with different agents working on the same role in the same company and the first one says “I cannot move forward because I don’t know your current salary but the company requires it mandatory.” but the second one at the same time easily moves everything forward regardless my rejection to reveal it. It again confirms my suspicion that this magic question has nothing with clarity and transparency at all but only about helping in-house recruiters to give me the lowest offer. So why should I set up myself? If the company sees fit between my profile and their requirements it’s fair to negotiate and maybe reject me if my salary expectations don’t meet theirs but don’t set my current salary as initial bar.

Do I misunderstand something?