Dirk Knemeyer

Compensation and transparency

Originally published on the Facio blog

Companies that talk the whole transparency talk almost always draw the line on the historically most sensitive of topics: compensation. There is a notion that compensation is too sensitive, that letting everyone know what each other makes is just going to invite problems that you really don’t want to deal with.

There is some merit to this line of thinking. After all, the way we compensate people is hardly a meritocracy. The nature of business requires us to get most employees at as low a rate of compensation as we possibly can, in order to keep the business healthy. In the process, it is inevitable that some people are overpaid relative to their worth, while others are underpaid. This makes employees having transparency into compensation potentially frightening. More, given the relationship some people have between their relative pay and essential self-worth, the risk can go beyond destabilizing your organization to include impacting the self-esteem of one or more of your employees. It all sounds pretty scary, doesn’t it?

Of course, there’s a flip side to salary transparency. For one, it promotes accountability. If your organization is generally healthy, employees won’t let others skate by, and doubly so if they are overpaid relative to their contributions. The openness of information can help you get more out of underperformers in general, but particularly those who are overpaid. Now, it will also encourage top performers who are underpaid to possibly ask for more money. But ultimately, that’s OK. Paying good people what they are worth should never be a problem; the problem is overpaying people who aren’t worth it. Another benefit can be that it helps to hasten the departure of poor performers, but if you are managing well you shouldn’t need salary transparency to accomplish that!

The big picture upside to salary transparency is that it can, indeed, lead to a meritocratic workplace. This may not seem like a great idea to employers, who know that they get great deals on some of their employees, for whom their relative underpayment remains blissful ignorance. But that is the wrong way to look at it. The best companies are populated by motivated high performers. Knowing they are paid fairly is one of the characteristics of high performers. And for those poorly paid poor performers, well, they either need to be performing better or moving along. The net is transformative, as top performers thrive in an open environment and under performers are helped to change themselves or move into a situation where which they better align. It will surely be better for your business, and chances are it will ultimately be better for your people as well.

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