Is there such a thing as too much transparency? Would work be a much better place if everyone knew what their colleagues earned?
We live in the economy that tries to obfuscate compensation policy as much as they can. Secrecy over pay is a major control lever for employers, but luckily things are changing in the right direction. Joel Spolsky wrote about professional ladder 14 years ago, as he deeply understood the need for transparency within organization. Few months ago, Buffer’s founders took a huge leap forward and introduced open salaries to entire world. OK, and probably got a bit of a marketing hype for free – but you can’t say they didn’t earn it :) And here’s our take in it.
Typical scenario: a manager (or employee) approaches you saying she got a better offer, and is seriously considering it. You need that person, and you need it badly. So what do you do? 9/10 people will probably try to match that offer and keep her. Epilogue? No matter how everyone tried, in the aftermath the word will go out, and others will inevitably learn about this. Half of the people will get bitter aftertaste, and another half will probably attempt the same themselves to get a raise. But 100% of them will surely lose focus and get off track!
Transparency: removes the distraction, negativity, and fear
The fact that people know one another’s salaries not only increases the degree of open-communication and collaborative culture, but also improves number of layers in company’s operation and culture. Here’s a few:
- Anyone hired into the company must be comfortable with the system (improves hiring)
- Employees have clear, formal channels for raising their concerns about pay fairness (improves culture)
- Peer group will not allow incompetent people move up and be highly paid (improves accountability within a team)
How employees feel about their pay is a significant contributor to their level of engagement.
Visibility drives accountability: How it works in Devana?
Everything begins with the full transparency of our financial information. Everybody knows how much each product earns, where do our expenses go and how do we use our profit. Everyone has access to all company performance metrics and we send a report every month where financial information about company’s business is fully available to everyone.
And everyone knows how much everyone earns. When it comes to salary calculation we – of course – have our own formula. Here it is:
We have four levels in the company, as there are no managers or executives – everyone is a shooter, including the CEO. Those levels provide the base salary, on which various modifiers for role, seniority and responsibility apply.
- Apprentice: A person engaged in repetitive or smaller tasks, usually helping others, while expanding their horizons needed to achieve the next level.
- Supervised: On this level the team member needs to be able to fulfill the task on her own, though it is clear that she needs supervision and mentoring. Every task needs to be specified clearly and in details, and after completion it is usually being improved a bit in order to be optimal. However the team still needs to have full confidence in her and will often treat her as an executor.
- Rebel: Able to challenge current processes and pro-actively improve them. Able to mentor employees on the Supervised level.
- Executor: This is the most important link in functional team. To put it simply – these people get things done. On executor level, a team member is capable of executing a task that is delegated as a mockup or a rudimentary spec. They build authority in the team with accountability and reliability of things they do.
- Key executor: Key executor demonstrates clear understanding of the big picture. Whatever tackles is done with in a best possible way given current context and circumstances. She is usually – but not necessarily – a team lead. Key executor has deep domain knowledge and every decision she makes is defensible.
We than apply various modifiers to the base salary. First modifier is for the team position – whether you are a happiness hero, product guy, developer, or something else. Full-stack developers get bonus modifier on top, as the most versatile and respected individuals within our engineering-oriented type of organization. Additional modifiers may apply for seniority – but only within the company, thus “head” role – for people leading sectors of the product. All employees are treated accordingly. We also have an annual 5% salary increase automatically and we justify this by the ‘wisdom’ the employee acquired in the previous period that ultimately makes them more capable and useful to the company. A sense of real fairness turns out to be deeply rewarding to the brain, especially compared to a sense of unfairness that pervades many employees’ darker thoughts, which activates a strong threat response.
To increase our profitability we use gainsharing as a method to motivate employees to improve their performance through involvement and participation. Each month we pay out to employees 30% of the profit increase over the historical best six month average.
“I transparently hate your guts and want you out of here”
Transparency per se is not the goal – this shouldn’t be “show and tell” game. Just being transparent will not cut it. Instead, the goal is to build the framework around transparency – the framework that is supposed to be transparent and defensible. If you indoctrinate the right kind of beliefs and yield trust (for which the transparency is imperative) – they will in turn propel desired actions that bring results you want your organization to achieve. Without those in place, just introducing transparent salaries won’t do much, on contrary – it may only make things worse. Only with the right people on the team – people who want to win – and want the entire team to win – transparency can be incredibly powerful tool.