Image by wallyg via Flickr
I recently had a post about “When Can You Talk About How Much You Make?“, and I recently followed that up with a post on the Yakezie about “Do You Really Want To Know How Much Others Make?“. The discussion was started when Financial Samurai had a great post about why we should never tell anyone how much money we make.
What do you think? Are we too secretive about our finances in the Western world? Here is some of what I had to say:
The advantages of a more transparent society
Pay would be more closely tied to performance. What often happens with companies is that some people are friends with the boss, or some people just happen to have been around a long time, and during better years they were awarded big raise after big raise. After some period of time, their pay is out of line with their peers.
This isn’t such a big problem so long as newer employees, who may be working harder and doing more, don’t know about the injustice. Eventually, though, word gets around, whether accurate or not, and because everything is so hush-hush, HR and management don’t react until after many star players have already left.
What if things were more transparent?
- The company would have to adjust pay to actual performance. Simple longevity or being friends with the boss wouldn’t be enough.
- The company would have an easier time attracting and retaining star employees. They would have to justify giving a higher salary, of course, but these employees would be motivated to work harder, since they would know the boundaries of what they could achieve if they applied themselves.
It’s simple: Those who believe they are giving back more than they receive will move on to greener pastures, while those being fairly compensated or those who are receiving more than they give back will stay behind. The company, and the shareholders by extension, lose out.
Read more: Do You Really Want To Know How Much Others Make?
I don’t believe in telling people how much money you make. Although it shouldn’t, it changes their attitudes and perceptions about you almost immediately – sometimes leading to unnecessary resentment.
I would compare it to how people often post on Facebook that they are going to go away on vacation. When they return home, they find out that their house has been robbed. If you advertise how much money you have or how much you’re worth, sooner or later trouble is going to come looking for you.
@MyMoneyDesign That is really the catch — it can lead to resentment where there shouldn’t be any! I do agree with not blasting details to the world that don’t need to otherwise be blasted — I don’t really “get” Facebook for this reason.
My money, my health reports and my secrets are for me. I don’t support or encourage revealing any of these in public.
@One Cent at a Time I respect that choice! I don’t reveal in “public” for the most part, though the 30k challenge will change things a bit. The closer the circle the more apt I am to reveal, so long as I suspect the person can handle it. If they can’t or if there is no benefit but lots of potential trouble, then I won’t.
I manage salary at the office and trust me, you don’t want to have salary public. It would just be chaos. Everyone has a different understanding of what performance is. There is an 80/20 rule in management that 80% think are great but only 20% really are. Imagine the frustrations and performance issues you would have if salaries were public. The 80% would all expect to be paid like the 20% …
@DividendEarner Haha, probably! But, are the differences really all due to performance? I guess there are a lot of factors involved, but it is fair that someone who’s been there for five years and is now as good as anyone else still gets paid 20k less because they happen to be younger or have less seniority? I mean, if the differences are solely due to performance then there should be no problem in sharing, right? 😉
I do agree with what you’re saying though, because you are right that many people do overestimate their own abilities and performance. I wonder where the happy middle ground is, because I do think there are downsides to too little transparency that ultimately also hurts the company.
@InvestItWisely The differences are not all due to performance. Far from it. First of all, it depends on market competition and negotiation. However, we review all staff every year to ensure it’s all in line. We often bump others and we deal with underperformers. But you are right that there might be a 5K or 10K difference at times for the same performance.
@DividendEarner Ok I see. 5k to 10k is not so out of line, but if it gets known of through the grapevine can’t it cause trouble. I am only saying this because I know of two different companies where it has, and I also know that at both companies, the top performers left because they did not receive what was merited.
My question is: How can a company differentiate enough so that top performers are rewarded for their performance, and at the same time, how do you counter employee dissatisfaction and demotivation when they find out about pay differences that CANNOT be attributed to performance?
@DividendEarner For example, if someone starts in at the bottom, doesn’t it become more difficult for them to earn more than someone else that started at 20k higher, even if they prove to be a better performer? The company will be reluctant to give out big raises. At some point though doesn’t this obstinence just cause the person to leave? I am not in your shoes so I’d love to hear more of your perspective on this.
@InvestItWisely Merit can be rewarded through bonuses or stock options. Obviously that’s not all companies that can do that. We don’t see a lot of discrepency like you mention and usually, if someone is behind we try to adjust them. Dealing with the case that person X doesn’t make as much as person Y is very rare. We have brackets which you need promotion to cross over and within a bracket you can have adjustments. IF person X really is like person Y, then he/she should either be promoted or adjusted.
Different companies have different issues. I work at a large corporation and I think issues as you describe are probably more apparent in small companies where they can’t easily justify spending more money on someone.
@DividendEarner Thanks for that update. It sounds like you guys are on top of things at your place. What actually happened in my own situation is that I was part of a small company, that then got bought by a very large company, and am now part of a small company again. The other few scenarios where I know of this sort of thing happening have also been at small companies, so that makes some sense.
Haha, that is true; everyone does like to think they’re better than they are! Conversely don’t you think too little transparency could also cause problems? Like when the guy who’s been there for 10 years is making 20k more simply due to length of service, and is now taking advantage of it by slacking off? The free market can eventually take care of this, but a bit more transparency might speed things up just a bit. 😉
I do think it could cause some problems, but I guess if it can be justified it should be ok, right? It depends if the differences are due to legitimate reasons or not. I guess that some people will always feel uncomfortable though, myself included to a certain extent.
I think we all have our own comfort level what we can share and with whom. Also, it is a matter of trust. I am trustful with a very few people in my life. I would never put my salary or my health history for that matter (as One Cent said) up publicly to discuss.
@aloysa2000 Publically like in front of everyone, I think I am with you on that.
I have had bad experiences with this sort of thing. Thats why if I ever have a business I will pay all my employees the same amount of money if the work that they do is the same and if they have been with my company the same amount of time. Nothing causes more trouble than finding out that the new kid on the block gets paid more money than the more experienced employee thats been working their a long time nothing. Its worse than being punched in the face by your boss.
I agree with this, and think that’s a good way to go 🙂