Buffer has taken transparency to an extreme. The social-media management tool firm has adopted what it calls an “open salaries” system, publishing all of its salaries, as well as the standardized formulas with which those salaries were calculated: Salary = job type x seniority x experience + location. In other words, a salary is determined by a base pay based upon job type; plus, a 5% to 20% bonus depending on seniority; plus, a multiplier based on experience; a premium tied to location (from no extra money if you’re based in Hanoi to an extra $22,000 if you live in San Francisco or Paris); and a choice of $10,000 more or more equity in the company.
Wharton management professor Adam Cobb says that while not everyone is going to be comfortable with everyone knowing everyone else’s salary, there is a value in such a system. “The interesting part is, they are saying, ‘here is how the process works.’ By showing that process, at least everyone knows what they are signing up for, and if they don’t like it they don’t sign up for a job like that.” If you look at the evidence, Cobb says, when people feel like they are being treated unfairly with pay, they engage in more dishonest and deceptive behavior, they petition management, they are more likely to reduce their efforts, and that imposes costs. “If everyone can see that there is a justification for why person X gets paid more than person Y, you’re hoping you can minimize the possibility of negative outcomes that happen when people find out they are being paid differently.”
Source: “Unfair — and Unfixable? The Simple Truth About Salaries”
Original Publication: Knowledge@Wharton
Subject: Human Resources