(Note: Reposted from my personal blog on https://jay.kanakiya.in/blog/failure-of-open-salaries/ )
The annual reports published by public companies are a treasure trove of information: financial statements, auditor’s notes, future guidance, major risks, but the thing that will interest many the most is salary disclosures. The current SEBI norms state that Under the new rules, companies will only have to disclose salaries of 10 top paid employees in the director’s report or to the registrar of companies and those earning in excess of 1.02 crore. In 2017, SEBI also made it mandatory to disclose to investors remuneration of employees earning above Rs 1 crore per year.
Is government regulation the only way to obtain salary data ?
No, this is the only mandatory requirement to do so, but there are a couple of different ways — If you know someone working at a similar position in the company, via Glassdoor, social experiments like when techies publish their salary data online or someone collates salary data for techies, you have worked in HR or a higher position or finally open salaries
In this article, I have done my best to analyse whether publishing your company’s financial data — revenues and salaries gives a boost to the business. The usual answer is that it depends, but on what factors ? Buffer (Link to spreadsheet) , Whole Foods, and SumAll are the few companies who have tried open salary data all to a different extent. Lumarow & RethinkDB is one of the few companies which experimented with open salary culture, but quickly reverted back due to its high organizational impact.
There are a number of news articles in Business Line and Business Standard written on open salaries and financials of companies, but very conversely, very few companies have stepped up to implement them
Where has open salaries worked ?
1. Whole Foods co-CEO John Mackey introduced the policy in 1986, just six years after he co-founded the company. He explains that his initial goal was to help employees understand why some people were paid more than others. (Don’t know status after Amazon’s acquisition)
2. Buffer: In late 2013, Buffer CEO Joel Gascoigne listed staff salaries on the company website — including his own six-figure paycheck and the formula used to calculate those salaries. Buffer has been very successful so far with publishing its revenues, equity, diversity, code, product roadmap right on its website for everyone to see
3. SumAll has published its salary figures internally, and according to their blog posts written by them, it has been very successful so far. The company’s founder Dane Atkinson does admit that this unconventional policy does trip people up sometimes when they are expecting a salary negotiation. (Data only available to internal employees)
4. Netflix: The video streaming giant which we all love implemented an open salary for its top executives and directors. It did raise a lot of furor over social media over the sky high salaries offered to top level executives.
5. Mish Guru: A small startup which helps you create instagram and snapchat stories easily. The New York based startup implemented open salary to address the pay gap in the US by making salaries of every employee known to every employee
6. Logic Supply: A small company (70 employees) makes computer systems for rugged environments like mining rigs, underground coal quarries or industrial environment. They implemented an open salary which has been successful for them, although with some compliants
7. ThreatCare: Cybersecurity startup that published their formula for open salaries inspired by Buffer. I could not find the public list of salaries although they have mentioned in 2017, that they will be publishing it soon
8. Vincit: A Finnish IT Contractor launched in 2007 which implemented the policy. Finnish law prohibits to open employees’ salary without their permission. Every six months Vincit asks employees for the permission. About 80% have already said “yes” and their salary information is available within the company
In conclusion, only Buffer & Whole Foods has been able to implement completely open salary information just available on the net with the formula while the rest only has made salary information available within the company. Out of the tens of thousands of startups and companies, why is the number of companies adopting this policy so low ?Is this failure of open salary ?
Why — Salary Data is private information of the individual and not the company (although its a stakeholder) and being transparent can usually open up a huge can of worms. Its detrimental to both the stakeholders: for individuals, it creates a lack of privacy and can lead to jealously & resentment, for companies, as it leads uncomfortable discussions and higher chances of employees getting poached.
The same companies keep coming up always in — Buffer and Whole Foods since the past 6 years. No other significant company has implemented the same open policy. Not startups or large companies or any company outside US have gone ahead with it
You only need to see the discomfort apparent when salary topic comes up in a societal situation .
Important Reasons for Failure of Open Salaries:
- Hard to break free from tradition norms which involves salary negotiations behind closed doors.
- Products, Brands and companies succeed because of teamwork, be it within the department or between different departments
- Reduced job satisfaction among lower paid workers — pretty obvious but a depending upon the type & size of company it can have a huge effect
- A huge unknown dependent variable — performance (including past performance), which makes it difficult to compare income levels of individuals
- Past Credentials — A major factor if your current compensation depends on your past compensation and your past college, which would be very difficult to standardize across the industry
- Confidentiality — Any employee now has access to what every other employee makes, which is a big cause of concern whenever the employee leaves.
- Legal Hurdles — Finland currently prohibits the publication of employee’s salary without their explicit permission. Not sure about other regulations on this
A Better Approach than Open Salaries
One Phrase — Open-Book management. Open Book management is about empowering every single employee in your business with the tools, education and data they need to act (and take responsibility) like owners. In simple words, sharing all financial information with everyone who works within the organization. Zingerman is the best known examples which employs open-book management.
According to an article written in Forbes, companies register 30% increase in profitability and productivity in first year alone, if they implement the approach properly
How is Open Book Management effective ?
- Bigger Picture — Front-line employees feel confident as to why a particular change was made and how it affects the company’s bottomline. A huge shift in ownership takes place for the particular employee as he also starts to think of the bigger picture
- Decision-Making — An interesting case study on how a dishwasher give a recommendation that completely turned the fortunes of a company. He suggested to cut quantity in French Fries to half with free refills as French Fries are the biggest thrown items due to their large portion. Simple to implement, saved thousands of dollars in any store, plus the additional value for the customer to get free refills.
- Higher Engagement — Open book management does leads to more commitment among employees, which is the primary factor now on what makes or breaks companies
- Faster and more agile — All employees can keep an eye out for bigger level changes happening across their own company. Based upon solid data, they can course correct or stop bad investments or invent entirely new ideas to tackle existing problems
Besides, it introduces a fundamental transparency in the company where every decision is based on financial data.
GlassDoor (&PayScale) collect company reviews and real salaries of large companies and displays them anonymously for everyone to see. It has grown massively in size, which shows 41 million unique users and 5800 paying companies. Recruit Holdings which owns Indeed.com announced its intention to buy GlassDoor for $1.2B. (Note: LinkedIn has also moved in the space and can be more successful due to their wide reach)
Do you agree with what you have read over here, do let me know in the comments.
Shoutout to my good friend Shreyas Kulkarni for reviewing