Share salary information, pay everyone $70k, and quit your job: advice for a better tomorrow

Corporate pay structures have bothered me and just make me think: there has to be a better way.

Small office from the 90s

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.

As an aside, it’s worth reading the whole slide deck and learning a little more about the Netflix culture story.

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.

Share salary information, pay everyone $70k, and quit your job: advice for a better tomorrow

5 thoughts on “Share salary information, pay everyone $70k, and quit your job: advice for a better tomorrow

  1. Anonymous says:

    Comparing salaries is much, much trickier than it sounds. Let’s suppose, for example, that you and I are both “Data Analysts” with five years’ experience and you make $60K and I make $55K. Seems simple enough. But wait. In my company, a “Data Analyst” is something like a techie admin whose good at making custom reports. At your company, on the other hand, a “Data Analyst” is more like a database programmer who provides the executives with forecast data on which to base company strategy. But wait, there’s more. You work in NYC, where $60K is barely enough to scrape by living in a lousy neighborhood in Jersey. I live in Milwaukee, where $55K puts me in a respectable starter home near work.

    But wait, there’s more. In addition to your base salary, you also earn stock options, the value of which varies from year to year and is not reflected in your salary figure. I don’t get stock options, but my company has profit sharing, which may or may not pay out a fat bonus at Christmas. Speaking of Christmas, I get three weeks off every year and you get two. On the other hand, your company observes more holidays and you have flex-time, so you can work from home a few times a week. My company doesn’t have that, but my boss is cool about letting me leave early for appointments.

    Your benefits cost a lot more than mine, which takes a bite out of your paycheck–which, once again, is not reflected in your salary. My cost is much lower. On the other hand, your plan covers a lot more services, so it’s hard to tell who actually pays less out of pocket. I have a subsidized cafeteria and a free gym membership. You don’t, but you do have subsidized daycare. And while my company still has an old-fashioned pension plan with a defined benefit, your company matches your 401K contributions up to 5% of your salary.

    I could actually keep going, but it’s getting tedious now. The point being that it’s very, very hard to actually compare the total value of a compensation package. Looking at salaries is not the apples-to-apples comparison it might seem. That said, although companies keep their salary data confidential, there’s nothing stopping any of us from publicly sharing what we make. It’s a prisoner’s dilemma, though, because it would only make a difference if almost everyone actually did it and was honest about it. Otherwise, it would actually hurt the individual making the disclosure. (The exception is when people confidentially disclose their salaries to professional associations. The members then have access to this data. In my experience it’s not terribly useful for salary negotiations anyway because employers consider all the factors mentioned above.)

    “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.”

    You might be surprised at how often this is not the case. Sometimes it benefits the employer, sometimes it benefits the employee, and sometimes it benefits both. Here’s an example. Let’s say you run a software development team and you ask an admin at your company to pitch in with testing one day. You discover that she really has a knack for it. You want to offer her a job as a tester, but without a degree or very much experience, you can’t justify a mid-market salary–at least not until she demonstrates her competence for a few years. You can bring her in at a relatively low salary, however. If you published your salary data, you would look like an employer who was stingy to software testers, when in reality, you’re actually an employer who is generous to admins! This kind of thing doesn’t happen every day, but it does happen, and the employer wants the flexibility to be able to make the offer.

    In any case, it almost never benefits the employer to lowball salaries too far. Ultimately, if you bring someone in too cheaply, they quickly become a flight risk and you lose money recruiting and training a replacement.

  2. Anonymous, your comment is longer than my post. That is to say, my post is far from a nuanced treatment of the entire topic and my title is admittedly provocative. Even so, comparing compensation packages between employers is already something we have to do, and something I trust ordinary folks to do. Setting salaries based purely on title is a bad habit of employers, not employees. I’m still not seeing how keeping salaries secret ever helps employees. I definitely agree, however, that a single person revealing his salary hurts more than it helps. But an employer, such as SumAll, can make a big difference, especially among their own employees.

  3. Ben Butina says:

    Sorry if my comment was too long, but that was kinda my point: looking at salaries outside the context of total compensation benefits no one. Yes, job candidates *can* evaluate the whole package, but in practice, they tend to fixate on job title and salary. (At least, this has been my experience from working in HR offices most of my adult life.) Anything that exaggerates that tendency may have negative unintended consequences for all. Employers who feel pressure to raise salaries, for example, will probably do so at the expense of other parts of the compensation plan that disproportionately benefit lower-wage workers. Even companies who don’t go this route end up setting salaries by benchmarking against companies that do.

    Most employers don’t set salaries based purely on job titles. They have comp analysts (or comp consultants) who look at title, responsibility, experience, the market, etc. when setting a salary range. It’s a pretty sophisticated skillset, and even those companies that don’t go this route end up benchmarking their salaries against companies that do.

    “I’m still not seeing how keeping salaries secret ever helps employees.”

    I provided one example. Is it flawed in some way or are you choosing to disregard it? Would more examples help?

  4. I don’t know that I can do you justice in a quick reply, but here are my soundbites:
    – Salary fixation might be a bad call for some. That said, I’ve learned that benefits can be easily taken away, whereas salary is rarely reduced. As such, I myself now place much more emphasis on the negotiated salary.
    – Information asymmetry (https://en.wikipedia.org/wiki/Information_asymmetry), by definition, does not benefit those with less information. It’s not that the job market fails completely, but rather that employers have employees at an excessive disadvantage.
    – While I agree that employers analyzing the market is a good thing, I also think that it would be a good thing for employees to do as well.
    – For the example of the admin getting a job as a tester, are you implying that the admin would be stuck as an admin because the fair and wise employer rightly fears giving her a junior tester position with pay appropriate for an entry-level position? The Netflix slide deck is a quick read and very worthwhile. For this discussion, I highly recommend starting on slide 95 (http://www.slideshare.net/reed2001/culture-1798664/95-Seven_Aspects_of_our_Culture). The argument is absolutely not to tie salaries to titles.

    Do you have any objection to the salary transparency at SumAll (http://www.businessinsider.com/sumall-salary-transparency-2014-7)?

  5. Thanks for the links to the Netflix deck and the article on SumAll. Made for interesting reading.

    “…I’ve learned that benefits can be easily taken away, whereas salary is rarely reduced.”

    I agree 100%. This is part of my concern. I think it likely that salary fixation would result in companies raiding the benefits budget to offer higher starting salaries at the top end. I believe this would disproportionately harm those at the low end of the wage scale. Highly-paid workers from dual-income families can pay for their own child care and gym memberships with relative ease. The single mom just starting out will be hit much harder.

    “While I agree that employers analyzing the market is a good thing, I also think that it would be a good thing for employees to do as well.”

    Yes, and there are already many ways to do this. The confidential salary surveys I mentioned previously are a good start. At a certain level of seniority, one can also work with a third-party recruiter who knows the salaries for a given market pretty well and who are incentivized to get clients the highest salary possible. I acknowledge that none of these is equivalent to the full salary transparency that you’re advocating, though.

    “For the example of the admin getting a job as a tester, are you implying that the admin would be stuck as an admin because the fair and wise employer rightly fears giving her a junior tester position with pay appropriate for an entry-level position?”

    More or less, though I’m not sure where you’re going with the “fair and wise” comment. The employer is taking a risk by offering an admin a position that would otherwise go to someone with specific training in that field, even at the entry level. In a major metropolitan job market, the admin may still have a shot at applying for that role with some other employer who is willing to give her a shot. In a small market, however, there is a good chance that she wouldn’t have that opportunity. If the employer was forced to reveal their salary data, that low wage would skew their average salary for a software tester (or Software Tester 1, or whatever the position is called) making them very unattractive to outside candidates. As I mentioned earlier, these situations do happen, and sometimes the employee benefits from the company having that flexibility.

    Being “unfairly” generous pays off sometimes. I’m sure that Gravity has high-quality candidates lined up for every available position, for example, because some people are going to love that culture. The folks over at Netflix who enjoy their “top of the market” salaries probably aren’t among them, though, because they know that their pay will always be constrained by the owner’s desire to pay even the employees with the lowest skills at least 70K. You said “the big losers when salary transparency comes to town are those making more without justification,” but almost certainly there are folks at Gravity who are making more than is justified by their skill level, right?

    “Do you have any objection to the salary transparency at SumAll?”

    Absolutely not. I have no objection to employers who wish to publish their salary figures and I have no objection to employers who do not. I do have an objection to an employer being forced in either direction, however. If salary transparency “comes to town” because employers choose to go in that direction or because the labor market pressures them to, fine. I think it would have some downsides, but that’s the way the cookie crumbles.

    I guess we’re all biased by our personal experiences to some extent, and I’ll admit that I’m probably biased here because I work for a company that does try to give employees a fair shake. And here I don’t mean “the company” in some abstract sense, I mean that I personally know the people that do this work and can vouch for their characters. I also know that people on the outside can’t always see this and take a cynical view of it. With a different set of experiences, I might see things differently.

    I hope things work out for SumAll and Netflix and Gravity. I could very well be wrong about all this, and I’d be happy if that turns out to be the case.

    Thanks for the good conversation.

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