
Why Companies Keep Pay a Secret   - cwan
http://www.smartmoney.com/personal-finance/employment/why-companies-keep-pay-a-secret/
======
tptacek
It really seems like you have two options:

 _Classic corporate style_ : all salaries are private, and management has
total flexibility in how salaries and raises are calculated.

 _Fog Creek style_ : there's a grade system, salaries are near-public (or easy
to figure out), and management is locked into pay brackets; a trade of
flexibility for transparency.

What doesn't seem to work is anything in between. If everyone knows everyone
else's salary _and_ management does flexible incentive/retention/recruiting
salary calculation, the situation devolves to "Incentive Pay Considered
Harmful"-style teamicide as people snipe at each other and invest cycles in
cultivating resentment about perceived pay injustices.

An employee might reasonably prefer one style or the other. It's probably nice
not to stew all day wondering if the guy slacking off next to you is making
more than you, but it's also nice to know that if you talk to your manager,
make an arrangement, and then just completely rock out for a couple months,
you can achieve an arbitrary pay bump. "Classic style" is more
entrepreneurial.

~~~
_delirium
I agree with that. There's some of the latter going on in science academia
lately. Pay used to be Fog Creek style, determined almost entirely on a
mixture of years of service (civil-service style) and rank. An Associate
Professor with 8 years of experience got a certain salary; a Distinguished
Institute Professor holding a Prestigious Chair got the salary associated with
that position. Pay and raises were fairly easy to figure out (approximately)
because they were entirely tied to these public ranks. There was still a lot
of politics, but the ranks at least have some social legitimacy: people are
willing to accept that the Named Chair of Particle Physics should be paid more
than an Associate Professor of Physics.

As things have become more market-like, it's become a lot more flexible
(mainly in science/engineering). A junior professor might get offered more
than a more senior and prominent professor because the school is trying to
lure her away from elsewhere, or really wants to fill a particular hole, or
just because of competition (if someone has offers from three schools, yours
has to be in the same ballpark). At private schools, this is sometimes handled
classic corporate style, but it's not _that_ private, because sometimes
faculty votes are involved in the decision making.

At public schools, this combines with sunshine laws that make any state
employee's salary viewable in online databases (in some states). This causes
all sorts of shenanigans. Now you have professors realizing that they're paid
$90k while someone much less accomplished in the same field is paid $110k, due
to the histories of who got hired when. So they're going to need to be offered
$120k, or else they're going to threaten to move (and there's a whole bluffing
and bluff-calling game in that). This also creates the perverse incentive that
people who move around a lot, or at least interview around a lot and solicit
external offers on a semi-regular basis, are generally paid more than those
who focus their energies on one university's research/education programs.

Overall I don't think it's been a good change for there to be both: 1)
disparity in pay that is not tied to clearly public things like Distinguished
Professor versus Associate Professor; and 2) that pay disparity to be public,
so colleagues know who makes more than who.

~~~
bobf
As a brief anecdote, I was completely shocked by what some professors earned
at the public university I attended. I had several standard professors in
finance and accounting who made ~$150-200k/year plus freelance consulting at
$500+/hr. If more people knew of the salary potential of being a professor,
universities might get more quality applicants.

~~~
joeyo
This is a because a professor of finance or accounting also has the
credentials to be a CFO (or even CEO). They're in demand and that's the price
that the market will bear. There is probably a similar effect in computer
science, engineering, medicine and related fields.

~~~
bobf
Of course. Most people just don't think you can earn that kind of income in
academia.

------
karzeem
My high school, a few years before I got there, once decided to post the
teachers' salaries in the lounge for all the teachers to see. The salaries had
no names next to them, but since they did list the length of each person's
tenure, the teachers deanonymized the list quickly.

There was a ruckus when people discovered that a lot of the worst teachers
were making the most money. Your salary was basically determined by how
frequently you had the nerve to ask for a raise, plus some consideration for
how long you'd been at the school. Not exactly a winning compensation scheme.

If your compensation scheme is well-reasoned and defensible, it's a lot less
of a problem when people figure out how much everyone else is making. If your
compensation scheme sucks, expect outrage.

~~~
maukdaddy
Actually, almost all teacher salaries are based on length of service (via
union contracts). Teachers seldom, if ever, are paid according to performance
(at least in public schools).

edit: How did this go from +4 to -1? I was just pointing out that in the US,
most teachers at public schools have salaries that are set via length of
service. Downmodding on HN has really gotten out of hand.

~~~
stretchwithme
Wasn't karzeem was describing how it is at karzeem's high school?

~~~
smallblacksun
Nearly all public school teachers are NEA members, and the NEA strongly
opposes pay based on anything other than seniority.

~~~
_delirium
The NEA opposes it, but they haven't been able to completely stop it,
especially since Obama's been a big proponent. The Teacher Incentive Fund
allocated $200m conditional on underperforming schools adopting performance-
pay plans, which has caused some to switch (e.g. Seattle has a trial program).

------
Tangurena
I've worked for quite a few companies over the years who had made it a firing-
offense to discuss salaries at all in the workplace. This made negotiation
your top skill in the company - not the quality of your work, nor the quantity
of your work.

While this didn't stop employees from finding out who made what, it slowed it
down, and it did little to reduce the sense of unfairness.

Folks who tend to go into managerial tracks tend to think that everything is
negotiable. While techies tend to be poor negotiators. This results in an arms
race where one side is unarmed.

~~~
ihumanable
IANAL, but as far as I understand it, in the US it is against the law to fire
someone for discussing pay as this is protected speech. The is part of the
National Labor Relations Act,
[http://www.nlrb.gov/Workplace_Rights/i_am_new_to_this_websit...](http://www.nlrb.gov/Workplace_Rights/i_am_new_to_this_website/what_are_protected_concerted_activities.aspx)

~~~
yason
Few people probably know that, hence the effectiveness.

------
jdavid
There might however be a huge advantage for 'underpaid' employee's to know
they are not paid well.

if pay equates to skill, or productivity, which in America is the general
idea, then underpaid employees are under performing ones.

Companies like GE will fire the bottom 10% annually. This is expensive and
requires an administrative and legal cost. Underperforming workers are also
usually unaware of there skill deficit.
<http://en.wikipedia.org/wiki/Dunning%E2%80%93Kruger_effect> Releasing
salaries might make performance acknowledgement more visible.

As a result of measured ( not actual ) performance being more visible
underperforming employees might seek a new job before getting fired or getting
frustrated. It might also encourage employees to seek out better mentor-ship
relationships.

I have even heard that on some scrum teams, there is a base salary for each
employee and then a team bonus that get's distributed by your other team
members, entirely in the open. The idea is that as a team you want the
strongest team members to stay on your team so that all of you can look
better. a sort of 'gamification' and 'collective bargening'.

i've always thought that keeping pay secret was lame. plenty of people in a
company can social engineer a way to figure it out, and in a startup it means
you have to do a ton more work to hide your financials from others.

i'm all for transparency and flatness.

~~~
philwelch
_if pay equates to skill, or productivity, which in America is the general
idea, then underpaid employees are under performing ones_

If you're hired and paid by honest people, yes. If you're hired and paid by
the moral equivalent of a car salesman[1], your pay is probably based more on
what they think they can get away with paying you.

 _I have even heard that on some scrum teams, there is a base salary for each
employee and then a team bonus that get's distributed by your other team
members, entirely in the open. The idea is that as a team you want the
strongest team members to stay on your team so that all of you can look
better. a sort of 'gamification' and 'collective bargening'._

How on earth do you do that without making the entire process a political
nightmare?

[1] It's actually much worse than this. Your boss doesn't have to be a cynical
car salesman trying to screw you out of salary to save money for the company.
He could just be susceptible to the same old "the squeaky wheel gets the
grease" treatment where people who ask for raises more often get raises more
often.

~~~
wheaties
_If you're hired and paid by honest people, yes. If you're hired and paid by
the moral equivalent of a car salesman[1], your pay is probably based more on
what they think they can get away with paying you._

Or they lack the ability to accurately judge people on their individual merits
and/or abilities as a contributor. That is, a sales guy has a very clear cut
idea of how much he's contributed. However, a guy who writes a lot of crappy
code and causes problems for people that come after him would look stellar
next to the schmuck who's got the untangle the mess he leaves behind. If
management isn't technical...

------
michael_dorfman
Just a data point: here in Norway, tax information (including income and
assets) are published in the newspapers every year, and are freely available
via web search. It's trivial to find out what _anybody_ is earning.

~~~
auxbuss
Serious question. Do you look? And how do you think having this information
changes people's behaviour?

~~~
michael_dorfman
I don't look-- I'm an American, and I find the whole thing skeevy. Many people
do look, though.

I live in a small town, and the year before last I was actually the top earner
in the town-- which got me a whole raft of unwanted newspaper and radio
stories.

Meanwhile, the names of people convicted of crimes are withheld from the
press. If you rob a bank, you can live anonymously. If you earn more than your
neighbors, you're going to make the newspapers.

------
rdl
There are a lot of employers which have standard wage scales, so knowing
anyone's salary is trivial with information like time of service. In the
military, people wear their pay grade on their sleeve/collar/hat, so it's even
more obvious. This doesn't seem to be a problem.

The biggest problem is if someone perceives pay as unjust. I personally plan
to publish salaries internally for everyone, along with all budgets (projected
and actual). The primary benefit is making it transparent how much various
resources cost -- often employees aren't expected to take into account the
costs of various activities, like a meeting which uses 4-8 engineers, or the
overhead of various admin tasks (like spending $20 of time to document a $5
expense).

CEO (and other exec) pay seems to be most often out of line; Peter Thiel's
observation about predicting the success of a company based on founder pay is
great, and a founder making $0-60k/yr is in a much better position to
negotiate compensation than a CEO (possibly founder) making $250k.

------
empika
We have open books at the agency I work for. Its pretty darn good to be
honest. No one is over paid and no one is underpaid. We are paid what we and
the rest of the company think we are worth. Simple.

Well, kinda simple. When having an annual review you must present your
personal development plan of what you have achieved in the past year, what you
hope to achieve in the next year (and possibly beyond) along with how much of
a raise you want. You then have a meeting with a review committee consisting
of two normal staff and two directors where you discuss how fair and equitable
it is to you and your colleagues, whether it is affordable for the company and
whether it would be attractive to a potential new hire hypothetically
replacing you. Proposing your own salary makes you really think about what you
are worth, and if you want a higher salary can really motivate you into
proving that worth and not just being a bum on a chair.

Its a lengthy process but everyone is pretty happy with it (there are few
things that getted tweaked everytime soneone has a review but its an ongoing
process of improvement). There is no way you can be paid to much or too little
as someone on the committee will complain and your proposal wont get signed
off. For example, a member of the board had to go back to the committee 4
times until they accepted his proposal, each time honing their salary level
and what they will be doing for the company in return.

I'm not sure that opening your books like the article says is the best way to
go. Salaries in most places are unbalanced and letting everyone know that
would lead to proven disaster. It would be best to try and get them inline
before opening them up for the employees to see, although i'm not sure how you
would do this. Its just a shame the article make no mention of how great open
salaries are.

ps, look up Ricardo Semler and Semco for en example of open salaries on a
LARGE scale. Its not just little agencies that this can work for!

~~~
empika
Great book by Ricardo Semler
<http://en.wikipedia.org/wiki/Maverick_%28book%29>

All companies should be based on this.

------
sstone
Making salary information available is but one, small step towards greater
employee satisfaction. If it is the only step - this can be disastrous. You
essentially get the problems described in the article.

The company needs to give much more information than just the current salaries
that got set by who knows what way.

First, the company needs to make available what the company is making - this
is usually available but in some big numbers like earnings per quarter. If you
are working on some product you need to know how much it sold and how much is
likely to get sold in the next 6 months. You need to at least be able to know
how much the company can afford in the end when all salaries together with all
the other costs are added together to still be profitable.

Then you need to know the median salary for your job at other companies. These
statistics are usually available - and if not can be found from recruiters.

Finally, you need to think about what is fair in your mind - how much does
your husband make, how much does the neighbor make, your friends - compared to
what they do? This is something you know and the company does not know about -
but it does factor into how happy you are with your salary.

Armed with all this you are ready to set your own salary. This then can be
seen by all others and a proper discussion can be done. Discussing things with
all this in the open is at least possible. Everyone can participate and after
a few months everyone will be armed with additional historical information
about Joe the Slacker or Jane The SuperStar and if their salary is fair. If
someone really thinks they deserve a huge salary regardless - they can always
go someplace else if the majority of her colleagues disagree and get her
fired.

------
dustingetz
Companies keep pay a secret because they want to minimize their payroll costs,
and there is enough of a margin between value-of-employee and compensation-of-
employee that its worth it to pay aggressive negotiators more.

------
vinhboy
Had to read the entire article to get to the important part

"...if dissatisfaction is a motivator, they'll end up better off."

I agree. Sometimes ignorance is bliss, but when it comes to your lively hood,
I think knowing is better than not.

------
fr0sty
I'm suprised that effects were very widespread and evenly distributed.

The only people I have ever known to talk about their salary/wage seem to be
union members (or other blue-collar professions). Electricians, teachers,
machinists, elevator repairmen, etc. On the flip side I have never heard a
programmer or other white-collar employee talk about their salary/wage unless
they are griping about a previous employer/contract.

Given that most of the hourly university employees probably already know what
the wage scale is I'm suprised an official publication of the data would have
any effect on satisfaction.

~~~
Dylanlacey
My friends and I are actively trying to challenge this by discussing salaries
and benefits openly. We've been told it's 'classless' by a few older mentors
etc, but frankly I don't see how it's classless to discuss what you're selling
your time for.

------
scotty79
> likelihood of searching for a new job increased

This is a good thing for the job market. There might be some companies that
have some better use for those employees if they want to pay them more. And if
there is no such companies then dissatisfaction from pay might be impulse to
improve ones skills.

------
petercooper
It's the "last conversational taboo"? Isn't it really just no-one else's
business if you don't want to share that info? Most people keep their bra
size, weight, penis length, or preferred sexual kinks a "secret" too, and pay
is just as personal and private to most people as those things.

~~~
roc
That's all 'taboo' means. It identifies things we _don't_ talk about openly,
regardless of why.

Personally, I think the social disinclination to talk about salary is as
manufactured for private gain as the whole diamond engagement ring
'tradition'.

The practical effect of secrecy in compensation is that employers have a
massive advantage in negotiations and end up paying far, far less for labor.
Perhaps I'm just cynical, but in my personal experience, effects like that are
never accidental.

~~~
petercooper
_That's all 'taboo' means._

Sure. My point was mocking how it can't be the "last" conversational taboo
since there are other, far more private things we don't tend to discuss in
public either. Indeed, discussing salary isn't a "taboo" at all from my POV
since so many people do it in public nowadays anyway.

~~~
roc
I've had far, far more conversations that included all those other personal
details than I've had that included compensation.

~~~
petercooper
You've had more conversations about your sexual preferences and anatomical
details than about money you've earned? Sounds fun but I suspect that puts you
in the minority ;-) At least on HN where "I made $X yesterday!" type comments
and posts seem to be reasonably common.

~~~
kscaldef
There's only one person I've dated who knew my salary, and vice versa.

------
stretchwithme
I wonder if it would be easier to accept the salaries of others if you knew
what they were before you even joined he company.

If a particular company disclosed everything to potential employees, would
those who couldn't handle the information be less inclined to join?

~~~
Someone
No. They can tell you the salaries of your future colleagues, but they cannot
know how good their performance is relative to what yours will be, let alone
how you will perceive that ratio.

------
artsrc
This looks at the short term effect in one organization. The effect across the
economy is something else to take into account. Market theory assumes perfect
information. If you want to use market economics to maximize efficiency, then
you want pay information published.

For example:

Some companies have issues finding people with certain skills.

People in other less productive companies who have those skills can use salary
information to move to the more productive companies that will be able and
forced to pay higher salaries.

People in other fields are encouraged to retrain into higher paying areas.

------
njharman
Am I a failure at a business person because my immediate (and obvious)
conclusion was that if 1/2 people became miserable and other 1/2 weren't
happier then the solution was to have everyone at or as close as possible to
the median salary rather than being secret and under/over paying a bunch of
money grubbing twerps.

------
finnomenon
I remember a blog entry that I most likely found here. It was from a company
owner who makes the rules which determine how he pays employees public to
everybody. It seemed pretty fair and according to him he hasn't had any
complaints so far. I will keep looking for it as it was a good read, maybe
somebody has it bookmarked though.

~~~
marcinw
You're thinking of the Joel Spolsky / Fog Creek method of publicizing salary
information amongst employees:
<http://www.joelonsoftware.com/articles/fog0000000038.html>

There's also a sort of follow-up on why he doesn't allow for negotiation of
salaries: [http://www.inc.com/magazine/20090401/how-hard-could-it-be-
em...](http://www.inc.com/magazine/20090401/how-hard-could-it-be-employees-
negotiate-pay-raises.html)

------
known
"Money doesn't always bring happiness. People with ten million dollars are no
happier than people with nine million dollars." --Hobart Brown

