The Downside of Full Pay Transparency
wsj.com
wsj.com
At the transparent company, I was hired in as one of the highest paid employees at a time that the company was struggling. Everyone ranked higher than me had taken a voluntary pay cut, to the point that some of them were paid less than me.
I felt guilty for taking more money than them, but conflicted as the problems were not of my making. I felt some resentment at pay peers that were underperforming. I was able to observe the performance of other employees and knew which ones were being treated fairly and not.
It was information that did nothing to benefit me, my peers or those below us in the organization. It led to more bad feelings than good and I am grateful that I do not have that information at my current employer.
I prefer sites like Glassdoor where you can get a general idea of what your coworkers might make, without the fine resolution of a name to dollar amount mapping.
I don't think it's that hard to identify malicious employers even without knowing everyone's salaries.
The non-malicious case then boils down, to me, to: who do I think is less biased in evaluating my value vs my peer's value? Me, my peer, or a third party that is neither of us? The answer to that is pretty obvious, and so what am I going to gain except being overly focused on me against my peers vs me against my past self?
I would be very interested to know how many people who want full transparency are managers who've had to deal with things like "there's a mismatch in these people's salary because they came in at different levels but are now performing equally, but if I give a massive raise (say, 30%+) this year am I setting them up to be disappointed when the size of that isn't duplicated in the future vs spreading that across 4 every-6-month slower-paced bumps?" Or with employees who are radically wrong about how valuable they are compared to a peer, because they're focused purely on code and not noticing how their peer laid a bunch of ground work in negotiating with product and other stakeholders to eliminate some requirements that would've made the project take several months longer?
You can be transparent about the why: "we're going to be doing some market adjustments to your pay, but here's how many people we've seen get disgruntled and leave in the past if we do it too fast," and "the next step for you is looking beyond the tasks in front of you to see the bigger picture of these projects, and building a relationship with people from the rest of the business," without the gut punch that "here's how much less money you're making" is.
I also noticed that there were engineers that made a lot more than me because of seniority, but they weren't very good and didn't contribute proportionally. In some cases they were actually a drag on the system because they didn't want to stay current with tech. The transparent pay actually became a disincentive to work hard and a demotivator.
We also had some "class-warfare" type problems, especially with some of the technicians that had no prior experience and were straight out of high school. They were generally paid roughly double minimum wage, whereas engineers would get around triple to quadruple the minimum wage. They resented that, and it created conflict and discomfort in the workplace that otherwise would not have been.
Despite some of the benefits, the downsides were just too high. I like seeing "ranges" so you can get a feel for whether you're getting screwed, but not necessarily individual pay levels.
you sound like a nice person who would have worried about knowing about the pay cuts even if the values were unknown to you. you might even have been more worried thinking it was more.
You are mistaken, open salaries benefited you. They let you actually see the huge organizational problems in the company that would have otherwise been hidden. You had more information in which to make your career decisions on.
The bad feelings were not caused by the open salaries, they were caused by the problems you listed.
Except, the problem is then the inability of the person with that information to attack those problems.
Anyone with the capacity to do something about those root causes should know everything. For the rest, that information is irrelevant to their job, and distracting at best.
A better analogy is infidelity. You shouldn't tell a partner if you've been unfaithful because it benefits no one. I think this quite by the Australian author Bettina Arndt says it best:
"That's the amazing thing. So many people end up confessing to an affair, which strikes me as the ultimate stupidity. Sure, you may believe you are confessing all to preserve honesty in your marriage, or because he/she deserved the truth, but the reality is that this 'telling' business is all about people not having the backbone to live with their guilt. Telling doesn't right the wrong; it adds to it."
(The Sex Diaries / Bettina Arndt)
Your spouse isn't paying you to be with them, and you're not doing any "job".
- You can't have net neutrality, it'll confuse customers
- Food origin labeling? Bad, people will realize we have no idea where food came from.
- Single payer? But it'll undermine the whole employer paid insurance patchwork.
- Close tax loopholes? We'll just push rich people to move money offshore.
- Stop bombing the world? Where's all the weapons, oil and mercenary companies gonna make money from?
- Share compensation data? People will quit once they realize their pay grading mechanism is subjective and arbitrary.Do you have an objective and determinite way to set compensation? If you do then you should tell the good folks here at YC that you have a great startup idea, pay gradation as a service, and collect your easy fortune.
All pay grading schemes are subjective by definition. A product is worth only what others will pay for it. When you are looking for employment you are selling your labor to an employer, of course your prospective employer can always not buy your product, especially if she can find another product for less.
As an example, if you temporarily suspend societal norm (which is what I'm challenging here), to think that we have the audacity to pretend that we know how to tax people and objectively rate society's needs and redistribute wealth into various public programs in a way that's objectively fair to everyone is absurd if we try to think of objectivity as a binary thing.
But our policies obviously have socialistic elements because we don't dogmatically lock ourselves in a strict dichotomy.
And I argue for the same thing in work compensation. Some form of pure cosmic objectivity may not ever be possible but it doesn't mean we should ideologically oppose attempts to approach that end of the spectrum.
The problem with redistribution of wealth and price setting by governments is that they cannot properly price goods and services because they have no vested interest in the effect of the resulatant price. As an analogy, it would be like sending your friend Donald Trump to buy your groceries for you, he would have no idea what he should be paying and would likely spend too much or purchase goods that you wouldn't have.
You say that we should keep our minds open in the hope that in the future this problem could be solved, but I think that by trying to look towards the future you look past the advantages of the free market.
As this relates to work compensation, the Trump analogy is still somewhat applicable. You wouldn't send Trump to negotiate your salary as he would probably overvalue you and ask for way more than you're worth to the employer, who would promptly tell both of you to look elsewhere. In a system where the government set your wages this would be great for you, as the employer would be forced to hire you at whatever ridiculous price Trump comes up with, but terrible for the business who depends on you making them more money than they spend on you. Such a system could never sustain itself in the hybrid socialist state, but would be forced to resort to complete government control of prices and wages as the weight of their own bad decsions weighed the system down.
In the capitalist/free-market system the individual takes the hit for making bad decisions, in the socialist/communist system everyone does.
There are systems that are more consistent in the way they reward employees, Gitlab [1] comes to mind, but what happens when the economy shifts and the compensation rates that the algorithm spits out are now way over or below what is normal for that position? They now have to change their algorithm again, which is effectively right where we started at as new hires will all be based off a new algorithm which would lead to dissent from the older employees.
[1]: https://about.gitlab.com/handbook/people-operations/global-c...
I'm actually having trouble following your line of reasoning because I can't tell how these two are related in your formulation of the hypothetical.
Anyway, that's all besides the point. In your analogies, I feel like I was arguing exactly for the opposite of what you're saying. I'm saying "let the pillar of capitalism (freedom of information) be a pillar of capitalism" and you're saying that I'm saying "proletariats of the world unite! don't forget to budget some gulags in our next 5 year plan".
> I[sic] found that nearly 40% perceived themselves as performing within the top 5% of their peers.
That's the point. Valuable talent _wants_ to be driven away by evidence of unfair compensation.
The problem is with egos, Employee A might view themselves as more valuable to the company than Employee B and vice versa. If Employee B gets a raise, Employee A will want one too, or a higher one. A spiral of trying to get a higher salary relative to other team members can begin.
Also, Employee A and Employee B might have private salaries that meet or exceed their expectations and everyone is happy. When salary information is public, unhealthy comparing can begin. Even though they're grateful for what they have, they see that more might be available if they ask for it.
Edit: Not that it isn’t currently gamed and not that this doesn’t already happen: I’m pro pay transparency but there aren’t any magic fixes here, this is a really complicated social issue.
The high performers will view it has a hard cap on compensation and look elsewhere, in my experience at least. Obviously this cannot be entirely correct, but it's hard for me to get into the mental space of someone who wants to be paid exactly as much as their peer sitting next to them. In my career I've always wanted to outperform the next guy - and be compensated accordingly.
I say this as having been both a high performer and an under performer. In the hard personal years where I am underperforming I would love transparency and know what to expect. In the years I was "crushing it" I'd have set myself back financially by a decade+ had I simply been okay with the average compensation for my position.
And the only people I can think of who would prefer the existing opague system would be those who benefit from it: management and people receiving outsized salaries for some anti-merofratic reason.
That was me! I can say without a doubt I quickly learned to only work for small companies where I reported to the owner directly. This enabled me to get 50% raises YoY when starting out - where my corporate job was limited to the typical "well, that wouldn't be fair to the rest of the group" style politics.
I would say it's vastly more important to the hypothetical vulnerable high-performer than the guy graduating MIT or Harvard working for Google. They start at an extremely high salary and will do fine no matter what. The high performing high school dropout needs rapid massive raises just to eventually get to par with the other group - assuming similar performance.
I can almost guarantee you that if salaries were transparent it would have been a huge scandal in a few of the companies I worked at since I was making 2-3x the wages of those next to me. It would have been untenable for those managers to pay me that, even though/if I were worth it - they'd have done nothing but deal with politics and fallout from it. I still believe I was underpaid in most of those positions compared to the folks they had working there.
Egos are easily bruised. When that 19 year old high school dropout is making more than the 45 year old with a degree people start to complain. Loudly. They don't even look at work output or performance - it's utterly irrelevant to most.
I see both sides to this, but I'm relatively certain salary opaqueness helped me through the start of my career. Now? Maybe not as much. It's much harder to stand out at an exceptional level once you reach a certain point.
Location base: For the other 65% of the base, we factor in each location’s cost of living using Numbeo together with data from Payscale and Glassdoor, which we then use to have a base salary for that particular location (say New York or Cape Town).
[1] https://elsajohansson.wordpress.com/2017/09/13/what-does-a-w...
When you notice that someone that brings zero value to the company gets the same salary as you one of two things happens:
1. you either loose any incentive to do anything
2. or you quit.
In time all what you're left with is the people you don't want.
(Termination protection does not apply if the behavior of the employee is the reason: http://www.gesetze-im-internet.de/kschg/__1.html)
The process may not be fast, but for a useless employee, it would be difficult to claim that the termination was unjustified, so the outcome is essentially guaranteed. I would call that easy (as opposed to simple).
Employer tribunals are not free and are intimidating to use, so many people who are wrongfully dismissed don't seek justice.
If its so easy to fire in the USA why is hr so paranoid about it
Where the Board stops hiring and delegates to management.
I got sick of being compensated the same (typically worse) as the worst employee on the floor, while doing 5-10x the productive output.
All these policies do over time is ensure you lose top-tier talent and eventually get stuck with a lot of middling folks who are content with the status quo. This can be a good or a bad thing, depending on who you are.
Also, do you really want to set up your incentives such that the smart thing to do is work just hard enough to avoid getting fired?
All arguments against salary transparency seem to be that people will be unhappy when they find out that the company has screwed them over and therefore it's better for these people to be ignorant.
Why do you assume someone making less is being "screwed over"? Imagine employees A and B. B greatly outperforms A and therefore rightly makes more. However, A is delusional about his skills and thinks he is as good as B. Pay information is made transparent and A sees he is making less. This makes him mad because by all rights he ought to be making as much as B! This type of comparison/resentment might make A want to quit or ask for a raise, whereas before he was both content and fairly paid at his performance level.
If someone is in an executive position, and something like you describe happens, it is their fucking job description to resolve the problem. Meanwhile, by having open salaries, everyone has the information needed for a competitive market. Including college graduates, who get screwed over routinely
//Edit: Oh, and if A ever DOES need to find a new job and advertises his "delusional" skills, either him or his next company will feel the pain from the lack of price information here
> saving the company money
Without measurements how can we can say who is delusional, A or B? Ultimately transparency benefits everyone except those who currently non transparently draw greater wages without justification.
People will adopt their attitudes, there is no place for immaturity and ego in a professional context.
No, seriously. If A is getting upset because he feels he's not paid "fairly", but A isn't contributing enough to get paid more, then someone needs to tell A exactly why he's being paid less. And if you can't explain why, then you need to reconsider that decision very, very carefully.
You can even reasonably guess someones salary based on their job and location, especially a coworker's.
Precisely the people with hard-to-guess salaries may value that privacy.
- an insurance company demanding a premium because you're well paid
- competitor bidding for your labour anchoring their offer to your current salary
Those are just two cases were it could be harmful. The idea is to make the information available and transparent while still not making it public and still protecting it.
I'm not a bad actor, who spends all their time figuring out how to make profit off of someone else's private info. I'm pretty sure there're very creative ways private information (salary and not) can be misused, but I don't want to find out by volunteering this information.
Salary info is a very small piece of the information needed to evaluate the fairness.
The article details quite extensively how difficult it is to communicate the totality of information in all but a few circumstances. If everyone could see every piece of relevant info then I'd agree.
One example: my value to the company may be for something you see as worthless. But you don't have the full strategic roadmap of the company's leadership in mind when you devalue my contribution. And the company may have valid reasons for not making the strategy widely known in the company. If you learned that I got a big raise for my success in that area, you'd feel slighted. The problem there isn't lack of info re: salaries, it's the impossibility of every employee having every bit of info needed to make the assessment.
I’m not saying this is easy, or without pitfalls, but the biggest reason I’m for transparency is that it helps protect against unfair salary discrepancies.
I like the privacy of my coworkers not knowing my exact compensation, it is not their business. If we follow your logic to its natural end, why not force disclosure of all expenditures each of us make as well? (which on another topic, that is the best reason to never have digital currencies)
This is a great point, and let me add that it becomes 10x worse when money is involved. Some (many?) people are just flat out irrational when it comes to money. Jealously and envy quickly block any rational thought when it comes to explaining why someone might make more than they do.
If team cohesion breaks down because pay information is revealed, give them pay cuts for being petty and disruptive. This is not an unsolvable conflict. People are not advantaged by remaining ignorant of their status in a transaction.
>I like the privacy of my coworkers not knowing my exact compensation, it is not their business.
It is their business to conduct the business of the company which employs them, which includes the distribution of that company's funds. Maybe people in other companies don't need to know, but people in yours do, because it is their business.
The floggings will continue until morale improves.
What markets function like this? I have no idea what the cost of growing, harvesting, shipping, and selling a banana is. At every step of this process there are capital investments, labor costs, and profit margins that are totally opaque to me. And yet I can look at the price of a banana and decide if I want to spend the money or not. One beautiful aspect of markets is that not everyone has to spend years researching every purchasing decision. The makert sets a price for you. If one company has margins that are too high, another steps in to take some of that profit, by offering at a lower price until it reaches equilibrium.
The job market seems similar. I don’t know how companies set their offer price but I am capable of evaluating offers all the same.
That would be the equivalent analogy. That you know you are paying the same price for bananas from the corner store as everyone else.
Right, but that mechanism is only possible if information is public. You don't know about the pricing of growing, harvesting, shipping and selling bananas - but it's possible to find out, and a company looking to enter the market would find out. You can rely on market pricing because the market lets you outsource your research to other market participants, but that only works if research is possible in the first place.
Largely because somebody else out there is doing it on your behalf in order to make a buck.
Without market transparency you wouldn't be able to rely upon this happening.
And in large companies with salary ladders, we know the range of all our coworkers.
The question is, when going from private to public information, how best to handle it so that it isn't a source of chaos.
I often think its that the transparency is only halfway that causes many of these peer to peer problems. It also doesn't help that most white collar work these days isn't directly translatable to revenue. Its easier to tell a salesman what he's worth than a designer etc...
They definitely have the option of not offering the raise and the employee choosing to leave. If the employee isn't worth X dollars more then the company should be ok with them walking without that bump.
In the end the issue being discussed is asymmetrical info, and positions. If an employ is producing less than their cost they don't get to keep that "surplus". They get written up / fired. But if an employee is producing more than their cost, the employer gets to keep that surplus. It's an imbalance.
Asymmetrical info on salaries produces this situation. I'm not saying it's right or wrong, but it is imbalanced.
This is the crucial bit: "In a study of engineers at two major Silicon Valley companies conducted some years ago, I found that nearly 40% perceived themselves as performing within the top 5% of their peers. Ninety-two percent felt they were in the top quartile, and only one engineer felt his or her performance was below average."
Say you're the manager. Let's start off with the optimistic case: you have a good relationship with your team, are using objective but not necessarily easy to measure (to prevent gaming) criteria to evaluate your employees, and you are pretty accurate in your assessment of how valuable each person is. They aren't going to believe you. Almost everyone thinks they should be near the top. You have no way to win this unless you judge purely based on lines of code or other such measures, in which case you've actually already lost for other reasons.
And then consider how hard this is for a less experienced manager new to the team, who might not have a full picture of everything but is going to get hammered by people complaining about not being at the top of their peer pay grade.
You can go away from pay for performance, which the article notes, but do you really want to? Is that the situation you'd prefer to work in, where you know what someone makes purely because you know how much anybody with that many years tenure would make?
There are also multiple definitions of "good developer" (speed/output level vs maintainability vs project definition and architectural influence vs firefighting vs...).
That doesn't mean they're all what a company needs at a given time. This leads to another way you end up in hard managerial conversations: you're good at X, but the business has changed and Y is driving our bottom line much more than X now, but you have no interest in Y and are resentful that you aren't being rewarded as handsomely for X anymore. What do you do if you're a manager who knows the odds of X being that important again in the future are very low (maybe there's enough structure in place now with automated testing and such that firefighting is way less critical than it was when small), but the one-time-star starts complaining that their raises have gotten smaller as they've resisted coaching/directional changes for the past year or two?
And if you're completely transparent with salaries, you've got an extra problem: this person could be higher paid than some of the people contributing the most right now, and explicit specific knowledge of that will just make even more people unhappy, if you aren't in a position to simply raise everyone's else's pay to match.
Representative ranges (with room for overlap for e.g. someone peaking at one level vs just starting at the next) give you many of the benefits with far less of the ego bruising. Generally you-as-employee can get a feel for what these are after a couple years even without it being explicit, IME.
This should be open discussion whether you have transparent salaries or not. Long before it comes to salary decision, the topic of "we need more Y, learn it" should happen. Not just because of salaries. If transparent salaries force it, then it is a good thing. Not just because of fairness, but because developers often focus on the wrong thing. And because when manager opens it, sometimes it turns out there is obstacle for doing Y that can be overcome with help of manager.
I mean, really. If you valued X in the past and just merely praised people for it and now it is changing to Y, be clear and tell them. It is very unlikely that your ninja coder turns from best to worst overnight just after slight strategy change. If he was so awesome, he will be able to learn new thing fast - unless there is some kind of resentment going on in his head which usually have little to do with strategy.
Non transparent salaries dont prevent people talk, dont prevent resentment either, but you usually end up with humble/shy coders having much lower salaries then overconfident ones. And I seen that humble/shy getting really resentful when he figured it out.
I'd argue that it is a sign of a healthy company when each employee is producing more value than they are taking home in their paycheck.
I am instinctively for transparent salary information, but I'm not sure if I can intellectually back it up.
I have a friend, whose team had this policy - no raise with promotion.
He got a promotion with no raise. When asked, his manager said, "you shouldn't work for money. You should work for the learning experience."
He resigned in a month. And this was not some random fringe start-up - one of the biggest companies in the world, with over $100B in market cap.
Seems like a bit of an extreme statement.
Was it fair? Who knows, it's not really possible to debate that because it all depends on your definition of "fair". But in my experience, it's not very realistic to assume that employee A sees what employee B makes and objectively understands how they need to improve to make what employee B makes. Especially since that's not really how pay is negotiated anyway.
Had the designation been clear from day one and each individual pay scale evolved over time publicly, I seriously doubt there'd be the same issues.
In essence, a reveal all at once is the equivalent of a massive swath of promotions to one's co-workers and not to yourself (for the lower paid), all in one day - yeah, of COURSE it's going to harm team dynamics. That doesn't mean we should only promote people in secret though, right?
Transparent compensation is simply a more granular hierarchy of representative productivity and value to a company, and the respective compensation, than a simple job title. We don't lose our minds at the idea that some employees are junior, others senior, etc. So what's substantially different with a more granular system to what already exists?
Any employee should be able to ask "Why is Bob making more than me?" the same way they might ask "Why was Bob promoted to XYZ position instead of me?" And a healthy company should be able to answer the question with the reasons why for the former, just as a healthy company can answer the latter. If an employee is lagging in salary over time because upper management isn't seeing the same value as their equally experienced co-workers, this should be made clear to that employee so that they can find out why their efforts aren't having as much value, and either adapt accordingly, or find an environment where their efforts will be better valued.
Imagine a classroom where each student can see their own grade as a number out of 100, but has no idea what the average is, spread, etc. You could have a C student who thinks they are doing as well as an A student, because they have no context for how they are being graded. Yes, there will be drama with each student knowing the other's grade, but they'll better know their own relative performances.
At very least, we should have anonymous compensation transparency, where employees can know where their own salary stands in the company compared to tokenized other salaries, so the conversation can at least be "Why is #335 making more than me?" instead of "Why is Bob making more than me?". In small firms/upper management levels this won't be all that anonymous, but it could mitigate the drama in larger employment pools while still providing the contextual benefit.
This is a great and underrated idea. Have an upvote! This solves the privacy concern neatly while removing the unfair information asymmetry.
Don't have to imagine it. This is how all of my education worked from kindergarten through undergrad. Grades are there as an absolute measure of how well you've accomplished what you and the institution set out to do; your peers' performance is not relevant to that question.
My high school and university both had longstanding policies against disclosing any information about GPA distribution or class rank, explicitly to discourage students from measuring themselves in relation to each other. Facing highly ambitious and academically successful student bodies, administrators (rightly, in my opinion) feared the cutthroat and competitive climate that grade transparency might create, and felt it didn't align with either institution's mandate.
Instead, we measured ourselves against our education and career goals and broad population averages, against which we were overwhelmingly successful. You didn't have to be better than your friends, only good enough for the college applications you had in mind (or later, the grad schools or employers you had in mind).
I view professional compensation the same way. A salary is good to the extent that it funds the housing, transportation, financial security, dining, entertainment, toys, travel, etc. that I'm after. As long as I'm in the Bay Area, no salary will ever be satisfying with respect to housing, but later in life, once I've attained conditions for my family similar to the ones I grew up in, what do I care if a coworker makes more? (Though I certainly couldn't resist reading and resenting it if available, I have no need for this information).
Put another way: I don't care that I'm beating 90% of startup employees if I still have to live with roommates. I don't care that I'm beating 90% of my high school classmates if none of them are going to college at all. I don't care that 90% of bigco employees are beating me if I can comfortably afford a nice condo with a short walk to the office. I don't care that 90% of my high school classmates are beating me if they're all going to Harvard and I'm accepted to the schools between #2 and #10.
It's not about the money. It's not even the fact that you ranked them. It's that you ranked them publicly, and from a place of authority to boot. And worse still, on a one-dimensional scale.
Maybe introducing those salaries would be a benefit for both employees and employers.
In which case after finding out they leave and if it turns out they're not all that valuable they mainly just end up screwing themselves.
I'm not sure why any employer would consider this a problem.
An underpaid employee leaving and getting a better job though - sure, that's a problem.
The same exact thing happens with promotions and titles, so should they be secret too? If it's such a problem then how about getting rid of positions altogether and just say "everyone's equal?"
The second point is exactly why salaries are hidden - to drive down wages. There's a damn good reason why American professional athletes players union make sure salaries are published. You only thought your salary was fair based on the information your employer gave, which was "it's fair, trust us."
I'm not being very articulate here, but i'd say the problem with pay transparency isn't the transparency part, but the actual process of determining fair/market-clearing wages for employees.
Nope. Then they would start accusing the algorithm of being racist, sexist, otherist. They would cite institutional bias - bias so pervasive everyone has it even while no individuals do - and demand the algorithm be tweaked for their favored lobbyists.
The problem with pay transparency is not that it doesn't work; the problem is that the entire concept is immoral and evil. How much money you make is, properly, strictly a conversation between the parties in the transaction. No one else should care about your income; they should focus on maximizing their own value and find those for whom their services are the most valuable. The kinds of benefits valuable to an individual are unique: everyone has a different in background, life choices, purpose, and capability. There is no way to account for the fact that person A values work that involves travel, while person B is interested in work with a predictable schedule; and it is improper for person B to look at person A's compensation and make judgements about their own compensation, not because it is impossible to analyze all of the factors, but because person B must decide their own purpose and work toward it.
This is simply another manifestation of the inequality debate. Equal is Unfair is a great book that unpacks the issues of inequality: https://www.amazon.com/Equal-Unfair-Americas-Misguided-Inequ...
so how does this differ from any other good/transaction where we DO share prices? Why is it not immoral and evil that I can compare prices between amazon and walmart?
All the problem you describe can be resolved by employers either justifying themselves to their employees like adults, paying more, or the employees quitting. All of which are free market actions, the first of which having the added bonus of humanising the relationship. The only downside: you can't just treat your employees like "human resources" and get away with it as easily. You need to treat them as people
A product on Amazon has a market price - the thing being exchanged is an objective, metaphysical fact and people assign it a value. In areas of labor where the uniqueness of individuals is less of a factor, you will generally find that pay transparency is the norm. This is often unskilled/low-skilled labor in jobs that cannot offer meaningful non-pecuniary compensation.
But most people do not work in such jobs, and even in most manual labor jobs there is a strong element of applying your mind to do good work. As such, your purpose as an individual is much more important.
Pay transparency detrimental to you, as an individual. To live a happy life, you must figure out your own purpose and use your mind to achieve it. Happiness is not the result of income, nor is money required to be happy. Your happiness is a function of the achievement of the values you have defined for yourself. If you allow the income of others to influence your decision making, you are only hurting yourself. You should not leave a job that is satisfying in its essentials - that is, it fits with your purpose, you do meaningful work - merely because you discover someone else makes more; that would only hurt you. You don't know - can't know - their purpose, their value, their preferences, that lead to their income and work environment.
How about we let people judge that themselves? It's everyones job not to hurt themselves, so how about we make sure everyone has as much information as the most powerful in the room. Otherwise, let's make the top 1% "happier" and impose a 100% tax on all income more than 3 standard deviations from the median eh?
//edit: I saw in another comment, you talked about pay transparency not making the wages rise. It might now. But then it will cause people to quit jobs where they are not valued, increasing their happiness.
//edit2: also, you sidestepped the question. Humans are not as unique as random numbers, amazon goods are not all the same. If there are 5 brands of battery, we don't say it is immoral to share the prices and compare because "each brand carries its unique and special history". It's a battery, 5V, X watt, Y $. Likewise, if I get hired to design a product, they don't care about my extensive research in japanese mud ball culture. I'm a project designer, education X, working hours Y, pay Z, expected outcome for the company Z*(1+some positive number).
If you're paying your employees porportional to the value they bring to the company (and both of you agree on this) there are no downsides to having transparent salaries. The system breaks down when the employees find out that the managers telling them "you don't need income to be happy" are making 5-10x everyone else while complaining that budgets are tight.
Perhaps someday I'll be less cynical, but I'll go ahead and say it: money might not be happiness, but it sure goes a long way to helping. If you need to work 80 hours / week just to keep food on the table and a roof over your head, leaving no time for you to express you own desires and wishes (and no money to do so), how are you supposed to be happy?
Money isn't directly happiness, but it helps in that you can acquire things that make you happy. For example, if my dream is to become a great guitar player, money towards instruments, lessons, etc. greatly helps. What if I want to see the world? That will cost money and time, which is often even more valuable than money.
> If you allow the income of others to influence your decision making, you are only hurting yourself.
If I find out that I'm getting screwed by my employer, and that I should ask for $20k/year more (which I can only know if I know the salary distribution for people of my trade, in my location), I fail to see how that can harm me. By the very definition, I'm being harmed every day I remain ignorant.
(Certainly, there are individuals who will chase the number, and let their hubris get ahead of them. They're not the people I think such initiatives are attempting to benefit. And I think the argument is that while such initiatives might not be perfect, they do more good than harm.)
If one party in a negotiation has extensive knowledge of the market and the other has a deliberately obfuscated view of the market, there is no way to have an equal negotiation. Which is what companies have relied on for years to systematically underpay certain classes of people.
This is true in every negotiation in every part of your life. What does equality even mean in such a context?
Epistemologically, there is no way for you to have enough context about either the other party or the other party's other counter-parties to inform your negotiation in a meaningful way. The only facts available to help you price your services are what others will pay for it, but this is not the same as pay transparency. Pay transparency is the price of other people's services, not yours, and it doesn't take into account your context.
Ethically, only you can know the value of the transaction - which is not the same as the amount of money exchanging hands. By that standard, employers are nuts to ever employ anyone, since employees don't pay their employers (except in North Korea and some unions). Only the employer can know the value they get out of you, in the totality of benefit your provide - though even then their information is very limited. And only you can know the value you get from your employer - again in the total benefit they provide both in cash and non-pecuniary factors.
To put it another way, you wouldn't ask for the same income from, say, Pornhub, Phillip-Morris, Google, and Watsi. So why do you think those companies should treat their employees like an undifferentiated mass of goop?
Is this outlook shared by many people? I've never even considered altering my salary expectation based on the company.
If a person starts a company and foregoes the full salary they could otherwise earn, they are making this kind of choice.
If a person is looking at two otherwise equal offers for similar work at Pornhub or Google, it is hard to imagine taking the pornhub offer without a significant risk premium. You couldn’t get me to work at such company for any amount of compensation.
Just about everyone I’ve met will discount the products and services for things they believe are a good cause. I once worked at a nonprofit focused on low income kids, and experienced professionals (lawyers, engineers, accountants, others) would contribute significant time at steeply discounted rates or for free.
The value of a compensation package is unique to the individual. There is no way to compare two people in the full context of their individual desire for straight salary, risk in the form of stock or options, scope of influence, prestige of the firm, rarity of type of work, work hours, flexibility of hours, retirement and health benefits, culture, geography, and on and on and on.
I don't think this is common. I would try to get the same income from all of them -- the absolute maximum they are willing to pay me. I'm certain most of the people I've talked to professionally about compensation would feel the same way.
My instincts tell me that labor is something with a price like anything else, and (aside from claims of unfairness) more transparency is better. The end result over time would presumably be the price of labor (salaries) would more closely resemble actual market value.
But I also consider myself to be a high performer, and the last thing I want when negotiating a raise is my boss to have to think about how the rest of the team will feel about it. I want him to care only about whether or not my services are worth it for the price I'm asking. And that just won't happen if it's all transparent.
This has never happened in economic history. You cannot make two people equal by raising the low producer, you can only cut down the high producer.
When train transport prices were regulated because local trains were more expensive than long haul trains, the result was the raising of long haul prices.
Incorrect, CEO pay rapidly increased once the executive compensation of public companies was published.
No it isn't - because it allows you to command more of society's resources for yourself over others.
So it is very much a matter for others - and you have to justify yourself to them because you want them to make stuff for you.
If you are paid more than me, and I think I'm worth more than you I will make my case or test the job market to see if I'm right.
Relative value is exactly what the world is about. That's why prices in stock markets are published.
So we use a proxy for value that is much more closely tied to an employee's leverage in the market place. Does your profession have a government granted monopoly (law/medicine)? Certification to entry? Are you a better negotiator? Do you have another higher job offer? Do you have personal relationships with a business's customers (sales)? All of these things are correlated with increased leverage and thus increased compensation.
Output is largely not. It may set a ceiling for compensation, but it is not as related to compensation as a persons' leverage.
And it follows that people with high amounts of leverage and comparatively low amounts of output will be "screwed" by salary transparency. They will have to justify why their leverage is worth more than someone else's output and that will make them unhappy.
Athletes are used to this comparison because it’s happened literally their entire life (well until the everyone gets a trophy crowd kicked in), but I’m not sure the population at large is ready to be explicitly told of their short comings.
Just this week I had a talk with an employee asking for advice. He was paid $10k under one of his peers, and he was rather upset he got told to go pound sand when he asked to be brought up to that level.
My thoughts at the time? Only $10k? The other guy is vastly more valuable in his role than you, sounds like either you're overpaid, or the other guy is underpaid to me!
The fact the guy thought it was unfair is the norm for humans. Exceedingly few folks have the self-awareness to step back and say "oh yeah, that guy really is more valuable to the company than I am - maybe I should step up my game".
Typically we call those folks high performers, and they aren't generally the ones having issues getting paid well :)
I know plenty of high performers who suck at negotiating.
Transparent compensation inherently ranks performance, what's valued by the company, etc.
"Secret" compensation allows the thinking of "I am equal to my coworker" to arise in the first place. So when a discrepancy in that ranking suddenly appears, there's significant cognitive dissonance, and a desire to re-establish equality (or rise above it).
Transparency means from day one, you know who are the movers and shakers, and how much you need to step out up in the eyes of management.
This whole argument is sort of silly, as we already have a less specific public designation of performance in job titles, and that hasn't stopped the world. Should we get rid of job titles so that employee A doesn't actually know they are junior to employee B? That's dumb - the job title hierarchy informs the junior employee they aren't as valuable or experienced, and as they improve, it's extremely likely that title will change over time (and in a not so well kept secret, their compensation as well).
We can all cite one off examples where there was drama associated with job titles, but in general, having them provides more benefit to both the organization and the employees than the outliers where it's an issue. Transparent compensation would likely be no different.
If you as a manager can give him targets on how to improve productivity and what level would justify a pay rise, that's actually helpful.
The explanation could be:
- you are trainee/junior not senior
- you demanded too less
- the labor market makes your position easier/cheaper to replace
- the company acquired big funding only after you joined
All is 100% independent from the amount of value you generate and work you do.
I once was told that the young designer on the team basically makes minimum wage and they therefore could not pay me what I demanded for becoming the CTO (One of a couple of things that made me reject the offer).
I'd probably feel bad for the young people in my team, if I knew what they are paid. I already feel bad when the team orders more expensive food and everybody joins.
The alternative would be raising or even loans, I don't know if the company could survive than.
On the other hand, a fair step-ladder to higher paid jobs within the company might be a nice incentive.
And besides that, the National Labor Relations Board considers employees discussing pay to be protected concerted activity. I'm not sure if just having the rule is illegal, but enforcing it certainly is.
The reason for most of these problems lies there. If employers could solve that there wouldn't be any problem. However, since that isn't the case, employees can take advantage of the opaqueness.
---
Case and point: if you could measure the value, you could figure out what is valuable, and if you can figure out what's valuable and what qualities it takes to create said value then your organization would already be successful.
It's not a matter of individual firms. It is a matter of individual firms interacting with a functional market.
I wouldn't want to work somewhere with public salaries, because I suspect that like unions they wind up enforcing mediocrity. I'm confident enough in my own abilities that I want the possibility of out-performing and being compensated for it.
On the other hand, as an employee I would want freedom to discuss salary with fellow employees, to get better information when it's time to negotiate raises and promotions.
Also, in a professional services firm, which I think is the ideal structure for software developers to capture more of their value, the partners all know each other's earnings (at least assuming the firm is of modest size). What's more, I agree pretty strongly with David Maister's recommendation in Managing the Professional Services Firm that partner profit-sharing should be based on seniority rather than some metric, since that is less likely to distort incentives and cause resentment.
It seems like I am all over the place! I'm not yet convinced these are true contradictions, but having them laid side-by-side does force me to ask why not.
This is one reason why I don't have a typical job for almost a decade now. I get interview invitations from big SV companies, but I hardly ever get invitations from local software houses, and when it happened, it went nowhere because they wanted to pay the average ERP programmer salary, citing "internal politics".
It also happens when I do per-hour consulting work - my rate is considered high compared to what Dummy Database Consulting charges, so I have to settle for lower values, but at least the values are higher in absolute terms.
What really makes people unhappy: telling them that they are underpaid, or underpaying them?
This is my surprised face.
Meanwhile, professional sports teams and the military, who rely on team cohesion more than random white collar professionals, have transparent salaries. If teams worked better with opaque salaries wouldn’t these ultra competitive/life-or-death industries have figured it out?
Who knew?
It isn't the company that provides you with job security. It is the job market. If everybody who thinks they are being underpaid moves on, it soon sorts itself out.
If we think of compensation being directly and only related to the value that that person brings to a company, it seems like we're neglecting half the equation. The flow of value goes the other way as well - I would require higher compensation for the same value delivered if I did not like the company or the work environment for example. I could also require lower compensation if I really liked the company or work environment. How does this discrepancy have any bearing on compensation compared to a peer who is (for the sake of argument) delivering the same exact value to the company? This half of compensation is extremely personal and subjective.
If transparent compensation becomes the norm (or legally required), I can see myself migrating back to consulting work where I would charge by project or deliverable which would totally obscure my hourly compensation even if the contract itself was public.
For example, I'm not sure how you'd accurately determine how much someone in HR middle management brings over the course of a year, or for someone working in corporate PR.
The company I work for has extremely transparent pay - you keep a % of the amount you bring in. It's no great secret how much anyone makes in a given month, nor how much the company brings in. But this only really works in that we're all working sales jobs, so you don't have to justify anything.
But, that's not how government agencies work; in the federal general schedule system initial pay steps within a grade can vary based on special needs of the hiring agency or special qualification of the candidate, and advancement in steps within the grade is based not only on longevity but acceptable performance.
State and local civil service systems I've seen seem to be generally similar.
Only for a little over 15 years.
> I would hardly call them the epitome of a highly functioning workforce
A mixed bag, IME, as are private orgs. But, even insofar as your claim is true, it would only be relevant as counterevidence (weak, perhaps, because of potential compounding factors) to the article’s claim that government agencies are an environment in which full pay transparency is not demoralizing and demotivating.
Then again, when requirements are clear it becomes much easier to make decisions that benefit the company. "Maybe we don't need to have the company retreat in Tibet this year."
[0] https://www.joelonsoftware.com/2000/08/30/fog-creek-compensa...
Some people see their self worth in their job, some in how much they earn, some mixed, some in how much good they do at work, some in having a family, etc. One fixed component is the salary which can't be the lever among people but it can certainly be interpreted as such, therefore should be private. Also, if I am a better negotiator than you are, why should I be perceived in a negative way? "Oh he works less than me, but he earns more". Maybe he is better at selling himself (?).
But it's ok that companies do such experiments, otherwise we would not know the outcome...
This is the heart of the problem. People think they are more deserving than they actually are. When they find out that they're not getting paid as much as they think they should, relative to people who they wrongly think they perform better than, they will be upset at management and envious of their peers.
Without the pay transparency, the women would've been oblivious.
https://www.ft.com/content/a0d8872c-d1b9-11e6-9341-7393bb2e1...
https://www.theguardian.com/money/2015/aug/29/women-in-20s-e...
Edit:
I do know you're talking about the 'scandal' where there was a paygap between male and female presenters in the BBC. Obviously it's not great, but it's also something I find it hard to care about when the story is, "Man is earning 500K a year, while woman is earning 300K".
[1] http://www.skatteetaten.no/en/person/Tax-settlement/Search-i...
Everyone who has searched for your name is listed in a sub-section / "tab", listed as a link on the same page where you can search for the information of others. I imagine that very few people are looking at that, especially not a few days after the initial "OMG now you can look up what everybody makes" articles in the newspapers.
Sure, it's easier and better for companies to keep their dirty laundry hidden, but it's better for employees. That's the whole point of transparency: to see the unfairness, and to work to fix it. And if you don't fix it, you won't be able to attract talent.
It's the nature of the beast.
If you don't want to be banned on HN, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll use the site as intended.
Yes, if only something could be done about that.