Salary Transparency: Should Your Co-Workers Know What You Earn? - Michael Wheeler

Last week, NPR’s Planet Money featured a story on a market analysis start-up (SumAll) where each employee knows everyone else’s salary.
Dane Atkinson, its founder, didn’t  operate this way. In his earlier businesalwaysses, he’d ask job candidates what they were getting paid currently. If that person volunteered a low number, Atkinson would
say that he’d try to match to amount (even if it was far lower than he was ready to offer).

“I have on many occasions paid the exact same skill set wildly different fees because I was able to negotiate with one person better than another.”

The tactic is common practice in the corporate world. It saves companies money, now and later on if starting salaries set the basis for future compensation. Nevertheless Atkinson now believes the practice is short-sighted. It works only “until the person finds out they’re getting underpaid.” Then there’s lots of crying and screaming.
By contrast, transparency is good for morale. It lessens the us-them divide between management and employees, and reduces suspicion about favoritism and discrimination (intentional or otherwise).
Most of his employees like the new approach. Chris Jadatz, who leads the marketing team, informally inherited that responsibility when someone else left the company. Jadatz, who was making $55,000, saw that his predecessor had been paid $95,000, so he went to his boss to complain. Atkinson immediately bumped up Jadatz’s salary by $20,000.
Atkinson prefers such conversations to old-fashioned haggling. He uses these sessions as opportunities to discuss performance in a larger organizational context. Atkinson reminds employees that those who contribute the most value to the company are appropriately those who are more highly rewarded. Those who are on lower rungs of the ladder learn what they need to do to move up.
In some cases (like Jadatz’s) Atkinson grants raises to bring an employee in line with colleagues. In other instances, the open book policy may discourage whiners who think they deserve special treatment. With transparency, even a small raise to one person could have larger ripple effects with other employees.
But transparency presents its own problems. Disclosing how much people get paid is easy. (SumAll posts the salary schedule on the company’s internal website.) Justifying differences is the real challenge. Employers who release such information better have credible explanations for why some people are earning more than others are.
The answer can’t just be seniority, how many hours a person puts in, or even how many contracts she’s landed in the last quarter. Other factors—collegiality, leadership, and creativity—are important to performance, but aren’t so easily measured. Subjective judgments about such qualities are bound to differ, especially when bosses and co-workers likely see different aspects of a person’s work.
Ego comes into play, as well. Research by my colleague Max Bazerman shows that most people have an inflated view of how much they contribute to a project, at the expense of fairly crediting teammates. (In studies, team members’ individual estimates typically add up to far more than 100 percent.)
So back to the question posed by the title of this post. Many companies tell their employees not to discuss their compensation, so you may not have a choice. But other things being equal, would you prefer to work where salaries are opaque, or where co-workers see one another’s paychecks, including your own?
Some people prefer the standard way of doing business. Dane Atkinson remembers recruiting a seasoned candidate who bristled at being told what her salary would be. “It’s unfair,” she said, “because I can’t negotiate.”
That attitude strikes me as being wrong on two counts. If that candidate had a plausible reason why she should get paid more than others in her role, then Atkinson could, in turn, use the same logic to justify the differential to current employees.
Moreover, just because the starting salary is set, doesn’t sweep other employment issues off the negotiation table. These might include the time-line for promotion, available resources, performance targets, and even the job description itself. In the end, those items could well be more important than starting pay.