Q. I’ve heard that some businesses publish the salary of each employee. Is that a good policy?
A. As in many business issues, it depends on the situation. In the right situation, it can movitvate employees, but in the wrong situation, it can have the opposite effect.
First, no business should prohibit employees from freely sharing their salary information if they wish. Most workers consider that personal information that they can choose to share, if they wish, and will resent being told they can’t.
Second, businesses should disclose the processes and formulas used to set salaries. That tells the employee what they need to do to earn higher salaries, which motivates them to work well. There’s no downside or risk incurred by doing so.
Third, salary transparency works well when salaries are based on rank and tenure, not on performance. Usually performance is considered in promotions to higher rank. Good examples of organizations or businesses using this practice are the military and the Federal Civil Service.
Fourth, salary transparency works well when each worker can see the performance of other workers based on an objective performance measurement. An example would be a sales force in which each worker is paid based on their annual sales record. Another example might be a small startup business at which each worker can observe the contributions of other workers to the business’ success.
Other than the above exceptions, it’s very difficult to publish salaries without causing resentment and having a negative effect on many workers. The difficulty is it’s not feasible to measure performance objectively and other workers can’t observe their co-worker’s performance. For example, in a large worker group in which performance depends on collaboration and teamwork, it’s impossible to select one worker’s performance over others. In my career experiences, that’s the typical situation. That’s also a problem in giving recognition. One plant I managed selected an employee of the month and of the year. It was impossible to objectively select one employee over the others in the team.
When workers believe others are being paid more unfairly, their productivity suffers and they are more likely to leave. Studies show that workers greatly overrate their performance and underrate others. For example, a survey of two Silicon Valley companies showed 40 percent rated themselves within the top 5 percent of workers and 92 percent rated themselves within the top 25 percent. In one plant I managed, we asked employees to rate themselves. I found most were objective and accurate in their self-ratings. A few overrated themselves. However, that was a mixed industrial plant not competitive Silicon Valley engineers.
Ralph Coker, a retired refinery manager, volunteers with the local chapter of SCORE, counselors to small businesses.