Salary, raise and bonus transparency

Goran Knezevic
Oct 4, 2018 · 6 min read

Do you know how much your working colleagues are earning? Do you want/need to know? Has anybody told you on a job interview that your salary must be kept secret from your other coworkers? Have you ever wondered why?

This topic is something that I want to go through from multiple roles in IT company. In my career I went from intern, to developer and then across team lead position to co-founder of software development company and those are points of view from which this salary and raise transparency analysis has been written.

Interview process

First of all, let’s demystify why managers don’t want that anyone speak about their salaries. We can start from the start point of everybody’s involvement in some company — job interview. Job interview is nothing more than sales performance where you are playing main role — salesman, whose main goal is selling. Selling what? Selling himself to that company.

Selling your self

Depending on communication skills, body language, confidence and of course knowledge and experience, everyone will present himself on unique way. If there is no deep and professional exam as part of interview, there is a high chance that someone with high social skills will arrange better starting salary than someone with lower social skills, regardless of their knowledge. Which is perfectly fine for sales manager positions, but not for developer position, especially if we consider that majority of software engineers are introvert persons (Personality types in software engineering, Luiz Fernando Capretz, Int. J. Human-Computer Studies 58 (2003) 207–214).

Bad interview process will result in this

Outcome of bad interview

So that is the first management fallacy — bad interviewing process and at the same time bad salary estimation. I don’t even want to talk about situations where developer needs to tell desired salary, without knowing salaries of potential coworkers or at least average salary and also not knowing about quality and knowledge of those coworkers. In those situations interviewer often accept underestimated salary proposed by developer.

What after getting the job?

Next thing is evaluation of new employees and deciding if newcomers are fit to team or not. Evaluation should be done by whole team and not only by single person (manager, team lead, etc). Multiple persons in decision making will reduce subjectivity. This is also opportunity for company to adapt salary of newcomers by asking their team members about their expertise. In case of transparent salaries, it will be obvious if these developers are over- or under- paid. In non transparent system it will be opposite, underpaid person will discover that on harder way and disappointment will be greater. And believe me, at the end, they will find out (if biggest secrets in the world are discovered at some point, how can anybody think that secrets such as salary can be hidden for a long time?). Maybe they will not found out exact amount of salary, but it can be estimated with various observations and factors that are off topic for this post… Generally, employee himself will notice if he is overpaid or underpaid and can initiate correction of salary.

Bonuses and Raises

First rule for bonuses and raises, always reward someone for applying good practices and process instead of rewarding results only. Why? Because when people figure out what you are rewarding for, they will eventually find shortcuts to the results and that can lead to catastrophic fall of quality over the time.

Second rule is public raise. If someone in the company is over performer, has outstanding dedication and expertise, it will be common sense to give bonus or raise to that person. And it MUST be public. And not just that, decision about who deserves bonus and raise should not come from superiors, it should be decided between team members, because who can tell better about value that each team member is providing to the team than the team members themselves? For this purpose we can use Kudos as suggested by Jurgen Appelo in his masterpiece “Managing for Happiness — Management 3.0”.

There could be two reasons why managers don’t want to have transparent bonuses and raises and that is because it wasn’t deserved or they are unable to recognize quality of other employees.

Blackmailers

Blackmail

If person demands raise and threatening to leave the company (for real or just bluffing) and if that person actually gets raise, that is because of blackmail, not because of his/her value to the company. If this person is valuable to company and if it is not satisfied, you (as a manager or owner of the company) need to ask yourself what is the source of this dissatisfaction. Always keep in mind that creative people (and software developers are creative people) are not driven by the money. They are mostly driven by 3 things (Drive, book by Daniel Pink):

  1. Mastery
  2. Autonomy
  3. Purpose

If your employees can’t have that in your company, it is not because you have bad clients or bad projects. It is because you create bad system and lousy company culture. Free advice what to change in that situation: change yourself! Evolve or replace yourself with somebody better than you and learn from that person.

Fairness

What else are the good sides of having transparent salaries? Well, first of all you will have sense of fairness. You cannot embed somebody in your company or team and expect loyalty from them if you are hiding something from them and if you are trying to deceive them. You will also create trust between you and your employees more quickly. Not just that, you will create stronger bond between team members. Persons which provide higher value, persons that couch and guide others will have larger salaries, which is expected. Others should strive to be like those persons if they want to have higher salary. There also can be jealousy and envy from some team members, but in that case you need to work on ego of your employees and not on their salary.

Removing discrimination

Additional gain is minimizing or completely removing salary discrimination on the basis of race, sex, age, or any other characteristic which is not related to productivity. Person that discriminate others will be busted very soon and discrimination cannot be hidden behind something called “salary confidentiality”.

Possible downsides of transparency

It is definitely harder to find a lot of people to work for you if you have tight budget. It’s easier when there is no transparency in company. Some people will get less salary even if they deserve a lot more and even if their coworkers have higher salaries. They will be left “in the dark”.

Another possible downside is fairness and objectives in determining salary. It doesn’t matter if you have transparent salaries if they are determined by single person. That is subjectivity issue (both perceptual subjectivity and conceptual subjectivity) that cannot be avoided because it’s part of human nature. Better approach is involving all team members in determining salary, but there you can have clans and mini groups that can discriminate others. Best solution is to have salary formula with multiple variables with less subjective variables as possible. If you do have formula coefficients that can’t be objectively measured (e.g. someone’s effort and engagement on tasks) then involve whole team to determine that coefficient.

Conclusion

Salary transparency is part of the culture and core values of company. It must be embraced by all employees (from intern to CEO) and same rules needs to be applied to everybody to make transparency works.

Some companies are going so far with salary transparency that they even publish everybody’s salaries on their web pages. And not just that, they are providing work log of each employee along with the salary. Someone can say that that is exaggeration, but transparency inside company is the least that can be done. Final thing left to be discussed is how to determine salary without being subjective. Every company should have their own objective as possible formula for salaries. We in KoloTree created our own and it will be shown in next post. Until then, keep your mind open and be transparent :)

KoloTree Blog

KoloTree blog about software development and programming

Goran Knezevic

Written by

Software engineer and IT company owner

KoloTree Blog

KoloTree blog about software development and programming

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