What happens to the guy in open salary co who is legit 50% better than everyone else? Do his peers vote to give him 50% more money? Or does it settle on sort of a union style pay scale, where everyone with the same # of years of work makes the same money (which is great for the worst performances, and terrible for the best performers)
The people who have the most to lose from open salaries are the dopes who somehow are making top-of-market salaries.
I've tried a handful of different ways to explain this (before backspacing out this comment box and trying again), but here's the best I can come up with:
You always have the ability to negotiate for higher pay. If you've spent much of your life in different workplaces, you'll probably know that people (generally) think they deserve raises for reasons other than those that make sense. Those can include:
* Poor personal money management
* Poor life decisions leading to more money needed
* Number of years spent with the company
* Number of hours worked each week
* How busy they appear to be
* How much they think they get done
* How much more work they think they do than they did last year
* How much more work they think they do than their peers
* and more
None of those things really matter, though. Factors that actually matter include:
* How much other employers will pay for your skillset
* How likely you are to leave
* How much it would cost to replace you
This is important because the people actually running the business have to understand this, but the rest of the employees don't. As a high performer, you'll be negotiating a raise based on those factors that actually matter and your boss (hopefully) understands that. You don't want to put him in a situation where he can (or has to) fall back on how the rest of the company will feel about your pay, because they don't necessarily weigh the correct factors in deciding whether or not you "deserve" it.
If I consider myself a high performer, I don't want to have to justify my request relative to others at the company, or what they received, or what they used to win over other people to vote to give them more money that isn't theirs. That's going to put me in a position where I need to win a popularity contest, be around a while (to comment positively on others' raises), or wait a few more months so I don't look pushy and selfish to the entire company.
...because none of that matters if I just do an interview elsewhere and get what I want!
I certainly don't want my salary dictated by the personal prejudices of my coworkers, especially when so many of them have no real idea of how much market value they're creating. I'm sure many of them think I'm a "dope" but my results manage to convince employers that my demands are worth paying.
Not that all top performers do this. Being good at a job has little relation to being good at getting paid a lot. But you can be both a top performer AND top paid, if you play the right cards.
Isn't that transparency, although in a very biased and limited form? Why would having more transparency reduce your leverage? It's easier to play the right cards when you know what cards are in play.
Because of jealousy.
There have to be a good 10-20 software companies with this Open Salary thing. From them, find one where for two people with the same # of years of experience, person A makes 2x what person B makes. From what I see, they all more or less settle on a (base pay) + (# of years * multiplier) + (maybe a location bonus) = Salary. I don't see variables in there for (he is awesome)
For a counter example, I can point you to wallstreet or finance in Chicago, and show you 100s of people where people at the same level make as much as a 2x pay difference.
If you think people in finance don't know what their peers are getting paid you are fooling yourself.
They are overall much more mature and transparent about pay than we are.
If you told a trader their salary was going to be posted publicly, decided by the rest of the employees (including junior employees), and that they couldn't negotiate it then they'd laugh in your face.
Giving up the ability to negotiate your salary is giving up your whole leverage. It's a ruse played by smart entrepreneurs to sucker engineers into taking lower salaries and feeling good about it.
Give that up, and people who are good at their jobs but bad negotiators will tend to do better, and people who are not good at their jobs but good negotiators will tend to do worse. I'd be fine with that trade-off.
Think of all the useless architects on much higher salaries.
As an ex-manager if I wanted to hire a mid level dev who was too expensive I would just hire them as a senior dev.
Edit: or even worse you lock people in based upon a rigid system like years of experience and end up like teaching where an amazing teacher who gets great results will get paid far less than a shitty teacher who has stopped trying simply because the shitty teacher has been around longer.
Every job involves some level of negotiation.
Even as a junior you have to negotiate with senior devs to give you time of day. Even as a junior you have to negotiate on features and estimates.
As you move up the chain it becomes more and more important.
I think most people in finance have a good idea of what their peers are being paid and a good idea of what they need to do if they want to earn more. People are paid fairly objectively and managers are upfront about what they value (at least within a firm).
That doesn't mean employees know exact percentages or bonuses and it certainly doesn't mean they know total comp in $.
When I moved into software development my first manager was shocked that I wanted to plan exactly how to get to the senior level, what I would need to demonstrate, and what kind of pay they offer at the next level up.
He couldn't answer any of my questions and it was like I was the first person who had talked about concrete career goals with him.
Telling people to go on a random walk for a few years and maybe they will move from mid to senior is the kind of transparency you get in tech.
Real transparency would be: If you deliver project X and can demonstrate you got Joe and Raj up to speed on Y then we will promote you/increase your salary/give you a big bonus/put you on the project you really want etc.
EDIT: In theory they should be based on what the employee could get elsewhere in the market, but if that were always true there would be no job hopping.
If you're writing code I can't maintain, my preference is to pay you less. Writing code that is easier to maintain is one sign of a good developer.
I don't want to pay you more because its too painful to lose you. I want to pay you more because its wonderful to have you.
Why would having more transparency reduce your leverage?
Boss: "If I did that, I'd have to give your 20 peers the same raise. You'll need to produce at least $20X value if you want a raise of $0.1X. I can give you a raise of $0.005X if you like"
My experience is that this is a taboo topic.
Companies hate it, as it gives you more bargaining power.
Has to be with people you at least sorta like though, can't go demand it from some 12 cubes over.
The GP is right in that, that person doesn't have much choice but to move on.
I don't have experience with open salaries but I do have experience with collective agreements and seniority. They aren't meant to take into consideration the "super stars". That's not what they are meant to do. Seniority and collective agreements do suck if you're a "super star".
I don't think there's a system where everyone is a winner.
I have taken a lower paying job because of my preference for that job and workplace. Money is not my principal driver (nor is it most people's).
I also agree that an open pay system could encourage super stars to leave. I once hired a woman who earned almost 50% more than her peers because she was amazing (it's the one time I recall paying a premium for anyone). If her peers knew, it would have been a shit storm, especially her male boss (who earned well less than she did).
We are too obsessed about comparing ourselves to others. I would most probably pick a culture where there wasn't transparency because I don't think someone else's income is anyone else's business and the emphasis on money is unhealthy.
So yes, it trends towards more coarse grained measures (years of work doesn't have to be one) at the expense of the "best" performers.
If you see lots of your best performers leaving for more money elsewhere you have 2 options, raise everyone up, or come up with better coarse grained measures.
I'm of the opinion that if you can come up with good objective measures for performance of software devs, you should immediately stop doing whatever made up business problem you are currently working on, and switch to judging software devs. You could literally charge whatever you want.
Or if you're in your twenties or thirties and pretty good at something and want to be paid based on how valuable you are in the market instead of based on your number of years clocking in.
Personally, I'd never want to work somewhere where my salary is set by a formula of my "experience" level.
Yes, but how much greater than $X is the question. If median salary goes up, high performers have to come down a lot in order to not run out of money.
On the other hand if its an arbitary, political or a self appointed measure I can imagine collegues could have a problem.
Sales is one area where measures are somewhat possible. For instance if a salesperson is consistently doing 2 million while collegues do 1 he or she is better in that quarter and is automatically compensated better because of commissions. Collegues far from having have a problem celebrate the achievements and aspire themselves. Similarly if someone closes a deal in half the time of the typical deal cycle then they could be considered to be better. They will close more revenue and get more commissions.
But it is important to point out its not the people but the performance being measured that is better and if you can do this as clinically in other fields compensation can be designed to automatically reward performance.
Presumably, that's how it works.