Corporate pay structures have bothered me and just make me think: there has to be a better way.
While the adversarial pay motivations make some sense and should theoretically work out in a market-forces kind of way, there’s a problem. A big problem. Most of us corporate employees have no idea what the market rate is for our jobs. For whatever historical reason, salaries are treated as privileged information. That attitude, from what I can tell, only serves the employer attempting to keep pay low.
Theoretically, employees can apply to many jobs and review the offers to determine their personal market rate. This isn’t just theoretical; this seems to be the best way for an employee to increase their salary. There is a very real and non-trivial cost that comes with applying for work.
As slide 104 of the Netflix Culture slide deck mentions, there are some common and bad compensation practices that also encourage quitting in order to get the fairest wages (unless your employer does the Netflix thing and pays you top-of-the-market):
- Manager sets pay at Nth percentile of title-linked compensation data.
- Manager cares about internal parity instead of external market value.
- Manager gives everyone a 4% raise.
I’m seeing encouraging signs, however. For example, Gravity Payments has a CEO who has sacrificed his own insane compensation package in order to make $70,000/year the minimum salary for his employees. The law of diminishing marginal utility implies that the Gravity Payments employees gained a lot more utility than the CEO lost. I’m impressed with Dan Price.
Another impressive sign is the salary transparency of SumAll. Dane Atkinson built the company from day 1 with salary transparency in place. That has worked out for them and strikes me as good move for pretty much every company. The big losers when salary transparency comes to town are those making more without justification.