One of the characteristics of open cultures is transparency, which is, in my opinion, a cornerstone necessity for trust to exist. One of the ways that this transparency is expressed is salary transparency.
However, what I’ve noticed frequently happen and be masqueraded as transparency is a kind of half-way salary transparency that doesn’t quite do it. It’s better than complete secrecy, for sure, but it’s just not enough, and I’m writing this article just as much for founders and MDs who are failing their own ideals (perhaps) by thinking this is actual transparency, when it’s not, as much as for employees or prospective hires of those companies, who might buy the “we’re transparent” line when it’s not actually true.
Trust but verify
When our primary belief systems moved from religious, mythical belief mostly handled by priests, to scientific, factual belief handled by scientists1, one of the most tangible, important differences was a shift from a system of faith, where everything had to be just accepted in the form it was handed down, from an authority figure, to a system of verified facts, where everyone could, and was invited to, test the theories for themselves2.
Of course, this is a big change for people, so it’s not all that surprising that it hasn’t percolated through all of society yet, even in four centuries!…
One of the primary ways that transparency creates trust is that everyone knows that they have the whole picture. They don’t have to take it on trust, they can check it themselves. Now, unlike high-speed relativistic physics, there is nothing in your typical business that cannot be understood by the layman, with some fairly basic training and explanations3.
The ability to verify the knowledge you rely on rather than accept it as handed down by an authority figure is so powerful, so transformational, that it turned the world upside down, and is largely responsible for the way the world works today. A society where the people cannot verify information for themselves, where the government hides things from them, is one headed for totalitarianism4.
The same is true within business. Being able to verify that what you know is actually true, rather than rely on faith alone, is a fundamental feature and benefit of transparency, a huge driver of the increased trust that is typical of open cultures.
Unverifiable data is not transparent
Many companies claim to have transparent salaries, but when you scratch the surface, you find out that what they have is transparent salary bands. Now, that’s a starting point, but it is not at all the same as having transparent salaries. Any company that says “we have transparent salaries” but has only a transparent salary scheme is likely to be hiding something, for the simple reason that compensation is a really high-pressure topic where people will naturally apply a lot of tricks and tactics. Any “transparent salary bands” system will almost immediately be corrupted by people who will apply the right pressure to the right points and argue convincingly that they don’t quite fit within the regular bands and deserve some sort of premium. Soon enough, you end up with a majority of people on the transparent scheme, and a small but growing number of people with special deals. Those deals are allowed to exist because they are hidden.
If a company has a “transparent” compensation scheme, but doesn’t actively publish its accounting and payroll data internally, you can bet your bottom dollar that there are people with special deals in the system. You know for a fact there is unfairness in the system. Apart from all sorts of other impacts, it means that unless you’re a mug, you will be wanting to get your own special deal as well. I’d wager that your average “transparent salary bands” system has a sizeable minority (20-30% at least) of its staff on special deals. In other words, it does not have salary transparency at all.
When, at GrantTree, we say that we have transparent salaries, we mean that all the payroll information, and all the accounting information of the business, including dividends paid to shareholders, is entirely transparent and verifiable. Every member of the team has full access to all the company’s accounting data. There is nowhere for a special deal to hide.
This is the only viable way to do salary transparency. You have to open up the financial data.
Advice to founders and CEOs
If you want to get the benefits of transparency, you must make the critically important compensation system transparent. If you don’t, then unfairness will creep into the system via this critical channel and build up over time. You can keep fighting it, but it will sap your energy and eventually you’ll give in.
The best time to implement salary and financial information transparency is on day one, when there is no unfairness in the system yet. If you wait until a lot of this unfairness has built up, shining a light on it may well be politically unfeasible. You may find you have to choose between transparency and losing some of your best people (who are the most likely to have successfully argued for special deals) while demolishing company morale for a while.
Advice to prospective employees
If you apply to a company that claims to have salary transparency, be sure to ask, in the interview, whether everyone has access to the financials. If they don’t, they’re not necessarily lying – they may simply not understand what salary transparency is5.
This may not discourage you from joining that company (perhaps there are other factors that are more important to you), but you should at least be aware of what you’re walking into: a system where everyone gets a special deal if they are good enough at arguing for it.
It may also influence your initial interactions. There is little point in trying to negotiate a higher (or indeed lower) salary with a transparent company6. On the other hand, if the company claims to be transparent as a negotiation tactic, then you should probably feel free to push for a higher salary – you probably will get it if they want you enough, though they’ll probably ask you not to tell anyone what your actual salary is.
A final thought on transparency and access
The same flaws that affect verifiability in science can affect verifiability in financial information. Namely, things can become too complex for anyone but a small cabal of compensation experts to understand. Or maybe the company has twenty thousand people and a supposedly transparent, but hard-to-access payroll information system7.
If the information is not easily accessible, it is also not transparent. And as information becomes more complex, it inevitably becomes harder to access. So, even if you do have completely transparent and easily accessible financial data, it will take some consistent effort to keep things that way as the company grows. Bear that in mind and don’t let inaccessibility creep in through complexity or other access issues.
- Transparency is not real without verifiability
- Transparent salary bands are not at all equivalent to transparent salaries
- If you can’t verify the payroll for yourself, there are certainly going to be some unfair deals in the system
- If you’re a CEO or founder, you need to push for total transparency to reap the benefits of a transparent culture (e.g. increased trust)
- If you’re a prospective employee, be aware that a company without verifiably transparent payroll is not actually transparent, no matter what they may claim
- Making the information available is not enough if it’s hidden away somewhere inaccessible.
a big move no doubt, but two models with a number of striking similarities↩
Of course, modern science has gotten so complicated that many areas are way beyond the average person to even understand, let alone verify for themselves, which leads to a perfectly reasonable perception that scientists and priests are not all that different in practice, for people who aren’t themselves scientists. And some sciences have used the cover of scientific training to exclude rather than include, thereby creating a cabalistic clique of insiders who are effectively operating like a priesthood. But I digress… this could be an article all by itself!↩
Mostly about how to read accounts, and the basic principles of profit, loss and cash flow↩
Yes, I realise there are several world-leading countries at this very moment who are exactly in that state – in fact, those where secrecy is not the dominant mode are very few and far between – a sad state of facts↩
One bold move might be to ask, during the interview, if they can show you the payroll. If it’s not possible, that’s suspicious. If it is, and isn’t a big deal, and is even seen as a great question to ask – that’s a great sign.↩
Incidentally, this is why we don’t work with companies that provide “free” interns. This is just as unfair as someone being paid twice as much as someone else for the same job, and so is totally unacceptable in a transparent system that values fairness at all.↩