Open salary policy - good or bad?

In America salary discussions ("how much do you make") are generally a taboo. As such it is not much of a surprise that a majority of businesses do not make salary information public and some even have policies in place forbidding the sharing of that information between employees.

Anyone here runs a company or works in one where salary information is in the open? If so, are you happy with this policy and do you think it's effective? I would love to hear both owner and employee perspectives on this.

Edit: Found an excellent article discussing issues with implementation of Joel's public pay scale at another company: http://alumnit.ca/~apenwarr/log/?m=200904#05 (tldr: it did not work out for them)

I worked for a mid-sized company (approximately 300 employees) that emulated the Government pay scales and classifications. Each year, a cost of living adjustment was applied, and a new scale was published. Everyone received a copy.

You knew how much your boss made, how much your co-workers made and life was good, to be quite honest. It helped to distribute the work much more fairly and evenly.

I was originally concerned that I'd get stuck in a 'bracket', but they offered great training programs and promotions were quite common. The scales were geared so that any competent employee could advance at least twice per year (plus cost of living).

We had some really, really great managers there, I don't know how easy this would be to implement in a smaller start up company.

Edit: I'd like to clarify what I mean by cost of living increase.

Many companies give certain allowances to employees. Some of them include transportation, home Internet connectivity, child care (especially for swing shift employees) and others.

Other pay outs are basically incentives, i.e. rewarding an employee for riding public transportation or a bicycle to work and home every day.

Its often more practical to provide a small increase year over year specifically for cost of living, however this mostly entails costs employees have to pay in order to be able to come to work in the basic sense. Its not practical to manage half a dozen allowances.

This could be delivered in several ways .. either padding a monthly pay check or increasing the company contribution to existing benefits such as 401k and health insurance.

I prefer the company won't tell, but employees are free to tell. I.e. the company will not publicize salaries, but employees are free to discuss this between themselves on an individual basis, if they want to.

I have worked for companies who forbade employees to tell others their salary. I always felt that was a cowardly middle-management strategy to hide information from the workers, to ensure that management had a advantage in salary negotiations. Such a 'code of silence' is probably not legal in Denmark, i.e. the courts will not uphold it.

On the other hand, some people are uncomfortable with others knowing their salary. For some, this topic is just taboo, or they feel 'ranked' against other employees who should be their peers if their salary is just marginally higher or lower. This should be respected.

If people know the company's policy before accepting the job, then you can do what you want IMHO. I don't think salary visibility is a top priority; i.e. I don't think salary transparency has a dramatic impact on corporate culture. In my experience people take a quite details-oriented view on salaries; how much do they get, is it more than last year, does it seem fair, can colleagues 'game' the system for an unfair advantage, that kind of stuff.

I'm a believer in the keep salary private and forbid employees from discussing it rule. Compensation can be a very complicated animal, and most employees will not understand the reasoning as to why their peers - who have the same years experience, the same four-year degree, and the same skill level - making different money than they do.

And even if they do understand it, they won't think it's fair (because, fundamentally, compensation isn't fair ) and it will hurt morale in the long run.

When you open up compensation, you lose a lot of flexibility as a business owner. Consider just a few not-too-uncommon scenarios:

• "I was just offered a job with a $10K increase in pay and, although I really love it here, my kids' expenses are really eating into my bottom line; can you help?"
• "I really do apprecaite the offer, but the thing is... I'd have to take a $10K pay cut. I understand you're small, but we'll have to meet in the middle for this to make financial sense."
• "The pay sounds fair, but I'd like to get 4 weeks of vacation instead of 2"

As a business owner, a $10K difference over the course of a year is small price to pay for the right person. But $65K vs $75K salary... that's a completely different ballpark. Are you just going to say "no" in all these scenarios? Are you going to give everyone an (undeserved) $10K raise?

The other thing to consider is time. What was right for the company two years ago may not be right today. To keep everyone on the same compensation level, you'd need to constantly give pay raises or pay cuts depending on the market conditions. Or do nothing, and give up

Salary is often more of a dis-incentive than a useful incentive. It's not something that will keep someone happy or working hard on a day to day basis.

Sharing salary information is great until you find out someone is being paid more than you, turning an otherwise neutral incentive tool into a source of stress, competition, or even inadequacy.

Especially in a startup where cash is short, knowing these things even in rough estimates can be a divisive issue - seeing the rolling cash register over people's heads walking around the office isn't good for anyone.

My basic philosophy on pay is that it that the goal should be for each person's pay to be a private affair, certainly as a matter of policy of the company. However, your goal should not be to use that as a tool to be able to have undeserved pay discrepancies. In other words, everyone's pay should be as fair as possible based on job responsibily and individual capabilities and if all of a sudden the information became public there would not be an inclination towards mutiny.

At the same time, I believe it is completely acceptable for an employee to disclose what they make if they choose to do so....

I think that you should only publish salaries if you use a standard payscale. Being totally open is fine, until you get some whiny person who decides to make a big deal out of a pay difference.

I work for a government agency, and my salary is published in the local paper once a year. We're all used to it, but I've seen contract employees get seriously miffed & demoralized when word gets out that person X makes 40% more than person Y.

If you work for the state your salary is public, so I have done that before, and it is fine, but, after a while I left since I had to do more work without a payraise.

I think generally it is tricky as a slacker may feel he works hard and should be paid more, and people will compare what they make and do to others, and it can create some ill-will.

Now, you may want to see what this is like by making the salary of those at the top open, and see how everyone reacts. For example, if the CEO isn't the highest paid, but someone else is, then that would be interesting to see.

If you do this then it may be helpful to allow others to get some input into a person's performance by doing a performance evaluation from the subordinates.

My experience with open salary policy as an owner of a small firm has been overwhelmingly positive. But we didn't just decide one day to disclose everyone's pay rate. We made openness and its social consequences the cornerstone of our corporate culture. Our employees do not have a uniform payscale.