9 ms·

Does Transparency Lead to Pay Compression? (2016) [pdf]

67 points by Dowwie 9y ago

gcb0 9y ago
...in the public sector. public sector in california lead to high attrition regardless of public or closed pay. comparing that to any other field or state is bogus from the get go. shame on this manipulated conclusion.
calafrax 9y ago
IMO salary secrecy is a weird fetish and probably counter productive. If the differences between employee salaries are not economically defensible then they should not exist. If employees cannot accept the way that their employers have measured their relative value then they should get a different job.
- kartan 9y ago
  > IMO salary secrecy is a weird fetish and probably counter productive. Hidden salaries are why the job market is so extremely awful and costly. I have heard a million times that it is really hard to hire talent. But still, our approach to the job marketplace is akin to a bidding system, not a market. Imagine that each time that you go to the supermarket you need to negotiate the price of every item. It will be so hard to know where to buy your groceries. And related to that also salary secrecy helps to hide discrimination from view. Again it makes it a hard problem even more difficult (https://hbr.org/2016/07/why-diversity-programs-fail https://hbr.org/2016/07/why-diversity-programs-fail).
  - sitkack 9y ago
    Any company that is paying lip service to Diversity and Inclusion (DI in c-level speak) while at the same time requiring or even asking for historical pay is being extremely disingenuous. By using historical salary, they are borrowing, leaning on and embracing someone else's bigotry. Offer the prospect a market wage, not what *ist system has decided they should get paid and you will suddenly see your workforce normalize in DI.
    - cbanek 9y ago
      Google does both of these (paying lip service to diversity and asking for historical pay, even requiring it). I told them I thought this was suspect, and I almost laughed when they made an offer (which was somehow lower than what I was already making and disclosed to them). I'm really interested to see how the whole wage gap DOJ thing goes, and how they will blame the gap on being "data driven".
- mattm 9y ago
  Completely agree. It's not a perfect analogy but if you look at professional sports, the main driver behind higher salaries was publicizing them. Prior to that, owners could pay some star players much lower than their market value simply because they were bad at negotiating. It's in our interest to have more publicity around salaries.
  - maxxxxx 9y ago
    I have heard the same argument was made about about CEO salaries. Once they got published they started rising.
    - Broken_Hippo 9y ago
      Ok, lets look at this another way. Say the average salary for a cashier is X at one store. However, Sally gets paid Y while Harry gets paid Z. Turns out, they have similar qualifacations and background, along with salary history. Both accepted a raise when they took the job at this store, but for whatever reason Sally gets paid more - and has since the beginning. Similar differences are found between other employees. As one of the reforms, the company starts publishing every employees' salary. A few folks, like Harry, are understandably upset. To help remedy this, the company raises the pay of some folks to make things more fair between folks with similar qualifacations, and make company-wide standards for getting paid more. After a while, that average wage, "X", gets higher because folks are getting paid more.
      - maxxxxx 9y ago
        This sounds like a good thing to me.
        chii 9y ago
        except for the shareholders
        Broken_Hippo 9y ago
- giobox 9y ago
  I've read before that with "open companies" where they publish all salary data, it can, on occasion, be surprisingly counter productive. I haven't read extensively on the topic, but I believe there are examples of companies who started out making all employee salaries accessible to anyone in the company reverting this division. Famously Steve Jobs ended up doing largely this at Next. At any rate, I think that publishing salaries openly can have its own set of issues, even if on balance I agree it's probably a fairer approach. This is one of those problems that touches on cultural norms though, so what works for one person can offend another. It's not difficult for me to imagine scenarios were certain employees may overvalue their worth, and take a great deal of offence to a perceived slight when viewing their colleague's remuneration. Humans often aren't good at looking at themselves purely as some kind of commodity to be priced by an open market, even if rationally that might make some sense in this context. People can get scared they will look over-paid, or embarrassed about being underpaid, even if neither of these things is true. There's the whole thorny issue of cost of living adjustments if your company operates in more than one location. The frequent debates I've seen on Gitlab's public salary calculator that tries to address cost of living illustrate how hard it is to get that right - you can get some pretty odd results from that thing just moving your zip code 5 miles in some regions. I imagine you're almost never going to convince everyone that the adjustment factor you choose is the right one.
  - scarface74 9y ago
    It's not difficult for me to imagine scenarios were certain employees may overvalue their worth, and take a great deal of offence to a perceived slight when viewing their colleague's remuneration. I agree that people may overvalue their worth, but in that case, wouldn't they look for another job that pays them what they are worth? Either they will find the job and get paid their worth or they won't and realize that they are paid what they are worth.
    - s73ver 9y ago
      Not everyone has the luxury to do that. There are many places where there just aren't that many employers, and the person may not be able to move.
- cirgue 9y ago
  I am paid less than one of my peers who has a masters from a prestigious university. I am cool with this: they have more debt and a larger skill set than me. However, I am thankful that other people in the organization do not see the difference in our salaries, because I would certainly be treated differently by people outside the team. Salary gets used as a proxy for competence: why do you think people stupidly expensive luxury cars as daily drivers?
  - tbrownaw 9y ago
    why do you think people stupidly expensive luxury cars as daily drivers? Because life is more enjoyable if your car doesn't make your commute suck more than it absolutely has to?
    - gcb0 9y ago
      alloy wheel and so many other items from performance cars now only bought for aesthetics make rides less smooth but people with your rationalization never skips on them.
      - walshemj 9y ago
        that's the point of a performance car not to feel like you driving a sluggish sofa
  - phamilton 9y ago
    I'm fascinated by how cashflow (student loans, mortgage, family, etc) affects compensation. Given two equally skilled individuals (including ability to negotiate) but one has a bigger mortgage,y hypothesis is the the one with the bigger mortgage will get paid more. I believe cashflow requirements make negotiating easier (provided there is room for negotiation). I'm not even going to entertain your offer for $120k. Not because I know my market value is greater than that, but because I cannot meet my financial obligations at that point. Even if I'm a clumsy negotiator, I'll get closer to my max compensation in that situation purely because I have a higher floor.
- phamilton 9y ago
  This assumes that compensation should be directly tied to value created. In practice, value created is merely the ceiling for compensation. The floor is the best alternative for the employee. People get paid somewhere in between. Neither the floor nor the ceiling can easily be generalized across multiple people.
- troels 9y ago
  Part of the problem, I suppose, is that it's very hard to figure out what value an employee contributes with. Making salaries transparent is perhaps rational, but it only gets you that far. If the other half was a solved issue, I don't think there would be much in the way of making salaries open, but as it stands, doing so just makes it painfully clear how broken our ability to measure worth is.
a_imho 9y ago
tldr, the conclusion: This paper has presented evidence that making wages public compresses the top of the public sector wage distribution. The evidence assembled is more in line with a “populist” response to visibility of top salaries than the effect of making public officials more accountable: salaries are cut because they appear excessive, regardless of whether or not they actually are. I did not spend enough time on the paper to comment on the measurement details, however I would rather trust the public's opinion on what is excessive. Also I find it a bit ill posed to study the effects of making public wages transparent. They should be by default.
- gcb0 9y ago
  no need. they compare California (high competition from private sector) with other states without such competition. they could manipulate it to proove any point. with the same data I could say that with sunnier days lead to more employee attrition. any point that California differs from the other state can be blamed, after the author ignored the private sector salaries, and he chose to pick a competing state without salary transparency to make their point.
walshemj 9y ago
It tends to lead to pay inflation what you mean Joe Blogs is getting x
- cryptonector 9y ago
  Perhaps initially, but since there's a limit to how high total compensation can go for all employees put together... the effect will be to compress compensation differences. The same is true if it should initially lead to deflation (e.g., if total compensation is already at the limit, then some of the more highly compensated employees will have to see their compensation cut in order for less-generously compensated employees to see theirs improved). Ignoring macroeconomic effects, this should just lead to compression of compensation deltas regardless of whether it also leads to inflation or deflation. Now, if every State did this suddenly, and if transparency were required of the private sector as well, then there might be macroeconomic effects as well, such as higher inflation (or faster deflation), and I won't hazard a guess as to which.
  - walshemj 9y ago
    doesn't seem to have worked for CEO compensation
baybal2 9y ago
There are countries where it is common to hire without having wage negotiations. Look at all Russian IT job sites: more than half of all job posts look like "senior computer programmer - $2000k ± $10 per month", and there will be few job posts with 3000 and higher montly wages, but the application counter for each of them will go from few hundreds to 65535
- Asooka 9y ago
  Russians don't like to bargain mostly. I suspect (but please correct me if this sounds too wrong/offensive), that it's a vestige of the planned economy they had - all salaries and prices set by the state, no bargaining allowed. It's a simpler system and removes not only a layer of stress, but also a layer of conflict between you and the employer. Though, if I were offered $2000k/mo, I wouldn't feel the need to bargain at all ;)
  - Frondo 9y ago
    Bargain about salary, or bargain in general? I lived for a while in a post-Soviet country, and bargaining was a regular part of every day. At the bazaar, in private cabs, even at black-market money changers if you were brave/stupid enough to use them. My brother-in-law is Russian, too, and I've seen him haggle over cars, electronics, home appliances, any "major" purchase.
    - ecesena 9y ago
      I think he was joking about the typo, 2000k/mo is 2M/mo
      - baybal2 9y ago
        Oh my, that's a typo. Yeah, do not hang out on internet forums late night
- troels 9y ago
  Not sure about the US, but here in socialist Europe, that's pretty much how the entire public sector works. You have very fixed salary-steps, based on education, job function and seniority and there is little to no room for negotiation.
duncan_bayne 9y ago
I work for a company that has open salaries - and a model by which those salaries are calculated. Marty gave a talk about it back in 2015: https://www.youtube.com/watch?v=sf5r4yLTc9k https://www.youtube.com/watch?v=sf5r4yLTc9k My experience is that it works very, very well - at least in the iteration we now have. I'm happy to answer any questions folks may have.
- ruty 9y ago
  there is a company already doing that and beyond.They call themselves "buffer" https://buffer.com/transparency https://buffer.com/transparency
deleted 9y ago
[deleted]
kirab 9y ago
Allow me to ask the question why "Pay Compression" is considered a bad thing? Does it make the world more just? Are you really working a hundred times harder than the people who pick up your trash?
sk0g 9y ago
In Sweden you're supposed to be able to see anyone's income information, I wonder how things work out there.

67 points by Dowwie 9y ago

gcb0 9y ago

...in the public sector. public sector in california lead to high attrition regardless of public or closed pay. comparing that to any other field or state is bogus from the get go. shame on this manipulated conclusion.

calafrax 9y ago

IMO salary secrecy is a weird fetish and probably counter productive. If the differences between employee salaries are not economically defensible then they should not exist. If employees cannot accept the way that their employers have measured their relative value then they should get a different job.

kartan 9y ago
> IMO salary secrecy is a weird fetish and probably counter productive. Hidden salaries are why the job market is so extremely awful and costly. I have heard a million times that it is really hard to hire talent. But still, our approach to the job marketplace is akin to a bidding system, not a market. Imagine that each time that you go to the supermarket you need to negotiate the price of every item. It will be so hard to know where to buy your groceries. And related to that also salary secrecy helps to hide discrimination from view. Again it makes it a hard problem even more difficult (https://hbr.org/2016/07/why-diversity-programs-fail https://hbr.org/2016/07/why-diversity-programs-fail).
- sitkack 9y ago
  Any company that is paying lip service to Diversity and Inclusion (DI in c-level speak) while at the same time requiring or even asking for historical pay is being extremely disingenuous. By using historical salary, they are borrowing, leaning on and embracing someone else's bigotry. Offer the prospect a market wage, not what *ist system has decided they should get paid and you will suddenly see your workforce normalize in DI.
  - cbanek 9y ago
    Google does both of these (paying lip service to diversity and asking for historical pay, even requiring it). I told them I thought this was suspect, and I almost laughed when they made an offer (which was somehow lower than what I was already making and disclosed to them). I'm really interested to see how the whole wage gap DOJ thing goes, and how they will blame the gap on being "data driven".
mattm 9y ago
Completely agree. It's not a perfect analogy but if you look at professional sports, the main driver behind higher salaries was publicizing them. Prior to that, owners could pay some star players much lower than their market value simply because they were bad at negotiating. It's in our interest to have more publicity around salaries.
- maxxxxx 9y ago
  I have heard the same argument was made about about CEO salaries. Once they got published they started rising.
  - Broken_Hippo 9y ago
    Ok, lets look at this another way. Say the average salary for a cashier is X at one store. However, Sally gets paid Y while Harry gets paid Z. Turns out, they have similar qualifacations and background, along with salary history. Both accepted a raise when they took the job at this store, but for whatever reason Sally gets paid more - and has since the beginning. Similar differences are found between other employees. As one of the reforms, the company starts publishing every employees' salary. A few folks, like Harry, are understandably upset. To help remedy this, the company raises the pay of some folks to make things more fair between folks with similar qualifacations, and make company-wide standards for getting paid more. After a while, that average wage, "X", gets higher because folks are getting paid more.
    - maxxxxx 9y ago
      This sounds like a good thing to me.
      - chii 9y ago
        except for the shareholders
        Broken_Hippo 9y ago
giobox 9y ago
I've read before that with "open companies" where they publish all salary data, it can, on occasion, be surprisingly counter productive. I haven't read extensively on the topic, but I believe there are examples of companies who started out making all employee salaries accessible to anyone in the company reverting this division. Famously Steve Jobs ended up doing largely this at Next. At any rate, I think that publishing salaries openly can have its own set of issues, even if on balance I agree it's probably a fairer approach. This is one of those problems that touches on cultural norms though, so what works for one person can offend another. It's not difficult for me to imagine scenarios were certain employees may overvalue their worth, and take a great deal of offence to a perceived slight when viewing their colleague's remuneration. Humans often aren't good at looking at themselves purely as some kind of commodity to be priced by an open market, even if rationally that might make some sense in this context. People can get scared they will look over-paid, or embarrassed about being underpaid, even if neither of these things is true. There's the whole thorny issue of cost of living adjustments if your company operates in more than one location. The frequent debates I've seen on Gitlab's public salary calculator that tries to address cost of living illustrate how hard it is to get that right - you can get some pretty odd results from that thing just moving your zip code 5 miles in some regions. I imagine you're almost never going to convince everyone that the adjustment factor you choose is the right one.
- scarface74 9y ago
  It's not difficult for me to imagine scenarios were certain employees may overvalue their worth, and take a great deal of offence to a perceived slight when viewing their colleague's remuneration. I agree that people may overvalue their worth, but in that case, wouldn't they look for another job that pays them what they are worth? Either they will find the job and get paid their worth or they won't and realize that they are paid what they are worth.
  - s73ver 9y ago
    Not everyone has the luxury to do that. There are many places where there just aren't that many employers, and the person may not be able to move.
cirgue 9y ago
I am paid less than one of my peers who has a masters from a prestigious university. I am cool with this: they have more debt and a larger skill set than me. However, I am thankful that other people in the organization do not see the difference in our salaries, because I would certainly be treated differently by people outside the team. Salary gets used as a proxy for competence: why do you think people stupidly expensive luxury cars as daily drivers?
- tbrownaw 9y ago
  why do you think people stupidly expensive luxury cars as daily drivers? Because life is more enjoyable if your car doesn't make your commute suck more than it absolutely has to?
  - gcb0 9y ago
    alloy wheel and so many other items from performance cars now only bought for aesthetics make rides less smooth but people with your rationalization never skips on them.
    - walshemj 9y ago
      that's the point of a performance car not to feel like you driving a sluggish sofa
- phamilton 9y ago
  I'm fascinated by how cashflow (student loans, mortgage, family, etc) affects compensation. Given two equally skilled individuals (including ability to negotiate) but one has a bigger mortgage,y hypothesis is the the one with the bigger mortgage will get paid more. I believe cashflow requirements make negotiating easier (provided there is room for negotiation). I'm not even going to entertain your offer for $120k. Not because I know my market value is greater than that, but because I cannot meet my financial obligations at that point. Even if I'm a clumsy negotiator, I'll get closer to my max compensation in that situation purely because I have a higher floor.
phamilton 9y ago
This assumes that compensation should be directly tied to value created. In practice, value created is merely the ceiling for compensation. The floor is the best alternative for the employee. People get paid somewhere in between. Neither the floor nor the ceiling can easily be generalized across multiple people.
troels 9y ago
Part of the problem, I suppose, is that it's very hard to figure out what value an employee contributes with. Making salaries transparent is perhaps rational, but it only gets you that far. If the other half was a solved issue, I don't think there would be much in the way of making salaries open, but as it stands, doing so just makes it painfully clear how broken our ability to measure worth is.

a_imho 9y ago

tldr, the conclusion: This paper has presented evidence that making wages public compresses the top of the public sector wage distribution. The evidence assembled is more in line with a “populist” response to visibility of top salaries than the effect of making public officials more accountable: salaries are cut because they appear excessive, regardless of whether or not they actually are. I did not spend enough time on the paper to comment on the measurement details, however I would rather trust the public's opinion on what is excessive. Also I find it a bit ill posed to study the effects of making public wages transparent. They should be by default.

gcb0 9y ago
no need. they compare California (high competition from private sector) with other states without such competition. they could manipulate it to proove any point. with the same data I could say that with sunnier days lead to more employee attrition. any point that California differs from the other state can be blamed, after the author ignored the private sector salaries, and he chose to pick a competing state without salary transparency to make their point.

walshemj 9y ago

It tends to lead to pay inflation what you mean Joe Blogs is getting x

cryptonector 9y ago
Perhaps initially, but since there's a limit to how high total compensation can go for all employees put together... the effect will be to compress compensation differences. The same is true if it should initially lead to deflation (e.g., if total compensation is already at the limit, then some of the more highly compensated employees will have to see their compensation cut in order for less-generously compensated employees to see theirs improved). Ignoring macroeconomic effects, this should just lead to compression of compensation deltas regardless of whether it also leads to inflation or deflation. Now, if every State did this suddenly, and if transparency were required of the private sector as well, then there might be macroeconomic effects as well, such as higher inflation (or faster deflation), and I won't hazard a guess as to which.
- walshemj 9y ago
  doesn't seem to have worked for CEO compensation

baybal2 9y ago

There are countries where it is common to hire without having wage negotiations. Look at all Russian IT job sites: more than half of all job posts look like "senior computer programmer - $2000k ± $10 per month", and there will be few job posts with 3000 and higher montly wages, but the application counter for each of them will go from few hundreds to 65535

Asooka 9y ago
Russians don't like to bargain mostly. I suspect (but please correct me if this sounds too wrong/offensive), that it's a vestige of the planned economy they had - all salaries and prices set by the state, no bargaining allowed. It's a simpler system and removes not only a layer of stress, but also a layer of conflict between you and the employer. Though, if I were offered $2000k/mo, I wouldn't feel the need to bargain at all ;)
- Frondo 9y ago
  Bargain about salary, or bargain in general? I lived for a while in a post-Soviet country, and bargaining was a regular part of every day. At the bazaar, in private cabs, even at black-market money changers if you were brave/stupid enough to use them. My brother-in-law is Russian, too, and I've seen him haggle over cars, electronics, home appliances, any "major" purchase.
  - ecesena 9y ago
    I think he was joking about the typo, 2000k/mo is 2M/mo
    - baybal2 9y ago
      Oh my, that's a typo. Yeah, do not hang out on internet forums late night
troels 9y ago
Not sure about the US, but here in socialist Europe, that's pretty much how the entire public sector works. You have very fixed salary-steps, based on education, job function and seniority and there is little to no room for negotiation.

duncan_bayne 9y ago

I work for a company that has open salaries - and a model by which those salaries are calculated. Marty gave a talk about it back in 2015: https://www.youtube.com/watch?v=sf5r4yLTc9k https://www.youtube.com/watch?v=sf5r4yLTc9k My experience is that it works very, very well - at least in the iteration we now have. I'm happy to answer any questions folks may have.

ruty 9y ago
there is a company already doing that and beyond.They call themselves "buffer" https://buffer.com/transparency https://buffer.com/transparency

deleted 9y ago

[deleted]

kirab 9y ago

Allow me to ask the question why "Pay Compression" is considered a bad thing? Does it make the world more just? Are you really working a hundred times harder than the people who pick up your trash?

sk0g 9y ago

In Sweden you're supposed to be able to see anyone's income information, I wonder how things work out there.