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I rather suspect that full salary transparency would result in a race-to-the-top.
by RyanMcGreal 16y ago
I rather suspect that full salary transparency would result in a race-to-the-top.
- jseliger 16y agoI was just going to say something like this. In The Logic of Life, Tim Harford writes about how CEO pay reformers thought that making CEO pay public would cause companies to reduce pay because high pay was so outrageous. The opposite happened. Why? Because who wants to be in the bottom 50%? Practically no one. If you open up salary information, everyone is going to want to be "above average," even in companies that pride themselves on hiring exceptional people--like Google. This year, the median is $90K, so everyone will want $95K. Next year, it'll be 95K, so everyone will want $100K, and so on.
- michaelochurch 16y agoFog Creek has a "ladder" system based on some fairly objective criteria. Based on years of experience and certain assessments of project scope and skill level, each employee gets a number between 8 and 16 that determines pay. This means that compensation is based on performance. Now, the only point of controversy is whether the employee and employer agree on performance. If there's a discrepancy there, at least there's something meaningful to discuss and, if the difference is irresolvable, then they should separate. This isn't perfect, but the gossip-driven salary-discovery system is even more imperfect and has the same problems.
- gavingmiller 16y agoCould you elaborate on this criteria?
- michaelochurch 16y agohttp://www.joelonsoftware.com/articles/Ladder.html http://www.joelonsoftware.com/articles/Ladder.html
- egor83 16y agohttp://www.joelonsoftware.com/items/2009/04/01.html http://www.joelonsoftware.com/items/2009/04/01.html more links inside older version http://www.joelonsoftware.com/articles/fog0000000038.html http://www.joelonsoftware.com/articles/fog0000000038.html
- r00fus 16y agoYes, the Verblen effect: http://en.wikipedia.org/wiki/Veblen_good http://en.wikipedia.org/wiki/Veblen_good (in this case the CEO is the Verblen good, the company is the customer).
- michaelochurch 16y agoIt could, but it could also save companies major headaches because people would at least have accurate information instead of gossip. Average salaries would go up a little bit (10-15%?) but there'd be a lot less volatility, and managers wouldn't have to worry about people coming in pissed off that they've been underpaid for three years.
- Tuna-Fish 16y agoIn Finland, tax data is public -- you can go look up what your coworkers are making without the consent of either them or their employers. I don't think it has caused a race to the top in any meaningful way.
- michaelochurch 16y agoEven if it causes a "race to the top", is that such a bad thing? Shouldn't most of the fruits of labor go to the people doing the work?
- angusgr 16y agoI think the "race to the top" people are talking about is the psychological tendency of most people to think they are better than average. So, if you know the average salary is $X and the top salary is $2X, and you're making $1.1X then you ask for a payrise to $1.6X because "you know you're better than most of the people here". Then everyone does. And so on. I think the way around that is to match transparent salaries with a transparent ladder of responsibilities/expectations/experience, like you were talking about with Fog Creek. Then there's a clear standard for people to evaluate what they are worth to the company.
- gyardley 16y agoWill they be paid a fraction of their salary if the company performs poorly? The biggest rewards go to the biggest risk-takers.
- michaelochurch 16y agoI can see the point you're trying to make, but humanistically and morally speaking, this isn't true. A person with $10 million who puts $3 million into a business isn't taking that much of a risk. There's some risk there and, yes, it should be rewarded. But a person with no net worth is taking a huge risk every time he takes a new job: career risk. This dynamic exists in startups as well. The people who are taking the real risks are the founders, not the venture capitalists.
- gcb 16y ago> full salary transparency would result in a race-to-the-top. because you work for a hobby...
- A1kmm 16y agoA race to the highest price the market can sustain. Companies will never pay so much they make a loss on a person, so the marginal revenue from having an additional employee is a firm upper bound on how much they will pay that employee. This is good from an employee's perspective, but it reduces profits for companies. As such, it is unlikely that many companies would voluntarily support transparency.