Salary transparency: Why it’s great for small businesses.

Why Are Your Co-Workers’ Salaries a Secret?

Why Are Your Co-Workers’ Salaries a Secret?

Small businesses, big ideas
Sept. 24 2014 1:49 PM

Coming Out at Work

What happens when companies stop keeping salaries secret?

Photo illustration by Ellie Skrzat. Photos by LinnGreen/Thinkstock and Comstock/Thinkstock
Not all workplace gossip is about relationships.

Photo illustration by Ellie Skrzat. Photos by LinnGreen/Thinkstock and Comstock/Thinkstock

Before I interviewed Carolyn Kopprasch, the chief happiness officer at social-sharing startup Buffer, I took a moment to look up her salary. It was simple to do, since the number is posted right on Buffer’s blog—along with what all of her colleagues make and the company’s formula for setting pay. Kopprasch earns $148,000 per year. Buffer’s CEO, Joel Gascoigne, takes home $175,000. Tom in engineering gets $84,000.

Jordan Weissmann Jordan Weissmann

Jordan Weissmann is Slate’s senior business and economics correspondent.

At most workplaces, salaries are treated like state secrets: rarely shared and frequently gossiped about. But last year Buffer decided to join the handful of companies that have opted instead for radical transparency, making it possible for employees to find out what each of their co-workers earns. Buffer then took the idea a giant step further by making that information public, as part of a wider effort to share the startup’s inner workings with the entire Web. The move generated headlines and, according to Buffer, a wave of interested job applicants.

“What is wonderful about it is there’s no question mark” about what everybody earns, Kopprasch told me. “There’s no speculation, which has helped us to trust each other.”

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For some workers, the idea of their salary posted on the company intranet might sound mortifying—the financial equivalent of having nude selfies leaked online. Pay is one of the few remaining details of our lives most of us are taught to think of as strictly private. Employers prefer us to treat it that way, too. According to the Institute for Women’s Policy Research, about 60 percent of all private-sector workers say they are either banned or discouraged from talking about pay issues at their jobs, even though U.S. labor law protects their right to do so.

There are plenty of public policy reasons to worry about all this secrecy. Keeping pay hush-hush makes it easier for companies to discriminate against women and minorities, while making it harder for workers to organize. As Lilly Ledbetter knows all too well, it’s tough to complain about being underpaid if you’re unaware of it.

Fairness concerns aside, academics have long wondered if pay secrecy might actually be bad for businesses themselves. Studies in the 1960s, ’70s, and ’80s, for instance, suggested that keeping salaries under wraps left employees dissatisfied with their jobs and less motivated. One touchstone paper found that managers overestimated how much their subordinates and peers earned, but underestimated their superiors’ salaries. In our imaginations, nobody is paid what they’re actually worth, and that might make it tough to get revved up for work.

In more recent years, research into the effect of pay secrecy on job performance has yielded more mixed results. Some studies suggest that employees fare better when they know what their fellow workers make; some suggest they fare worse. Much of it probably depends on personality. In an experiment last year, 144 undergraduate engineering students were asked to play a video game in which they could win bonus money. Before participating, the subjects took a survey measuring how much they were prone to worry about unfair pay at work. Come game time, the worrywarts underperformed when every player’s earnings were kept secret. Once earnings were made public, the non-worriers underperformed. Either way, someone was at a disadvantage.

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Well-informed workers aren’t necessarily happier workers, either, as economists David Card, Emmanuel Saez, Enrico Moretti, and Alexandre Mas discovered after telling University of California employees about a new website that published all of their salaries. After learning where they ranked in their department’s pecking order, relatively high earners didn’t become any more satisfied with their job. But relatively low earners got discouraged, and became more likely to start looking for new work.

If the literature is so murky about its benefits, what do businesses have to gain by making salary information open to all?

Trust, and a more a more cohesive corporate culture. At least, that’s the argument made by John Mackey, CEO of Whole Foods. The grocery chain started letting its staff check each other’s wages and salaries in 1986—from executives to cashiers. Today, Whole Foods also circulates sales data and profits for each store location, so employees can stay up-to-date on the company’s financials. “If you’re trying to create a high-trust organization, an organization where people are all-for-one and one-for-all, you can't have secrets,” Mackey has said.

At Buffer, which helps users manage multiple social media accounts, going public with salaries was a gradual process. Back when the company had just 10 workers, they decided to try it internally. As a next step, they shared the company’s pay formula online. Finally, they thought about posting actual salary data. “There were some hesitations, just because it’s such a strange feeling,” Kopprasch said. People worried about whether it would be awkward to have an ex-wife or friend know the nitty-gritty of their finances. They went ahead with it anyway.

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The move has helped the company in concrete ways. Rather than negotiate salaries one by one, Buffer uses a formula that takes into account details like an employee’s position, seniority, and local cost of living. (Many of Buffer’s employees work remotely.) After going public with its salary structure, the company got a wave of feedback from both outsiders and its own employees about how to make the equation fairer.

Many of the other benefits have been about team-building. Buffer is “a really open culture,” Kopprasch told me—the kind of company where workers wear Jawbone Up bracelets so they can share their sleep and fitness stats with colleagues. Making salaries public, and blogging about it, ensures that new job applicants are a self-selecting bunch who are comfy with that kind of show-and-tell at work. “It has really helped to attract the kinds of people who will be happy and succeed here,” Kopprasch said.

SumAll, a data analytics startup, is another company that has become well-known for making salaries an open book. CEO Dane Atkinson has founded about a dozen businesses and startups, during which time he’s learned to be wary of keeping secrets from his staff. He recalled how one employee angrily left one of his companies after learning she was making less than her colleagues—without ever bringing the issue up with her bosses. “People miss how much damage you start to create when you fill that closet with skeletons,” Atkinson said.

At SumAll, Atkinson wanted to keep the closet empty. Every SumAll staffer’s salary is kept on a Google doc loaded onto the company’s wiki; all 50 of the company’s employees can access it. “Some people have an early obsession with looking at the salary tables, and then they never look at them again,” Atkinson said.

Still, simply making salary information accessible creates an enormous difference in how the company runs. Atkinson said it prevents him from throwing too much money at new talent lest he irk his current employees, who can veto his hires. (“Our company is configured to mutiny very easily if it wants to,” he said.) Learning what their more senior colleagues earn has helped his junior employees figure out their ideal career paths, and some have switched roles within SumAll as a result. And because everybody has a more detailed sense of how much each employee’s time is actually worth to the company, they can plan projects more efficiently. 

“I don’t know why it’s so conditioned that everyone should hide their salaries,” Atkinson said. “In every other environment, data transparency creates natural optimization. It creates a more effective meritocracy. Now that we’ve experienced it, the rest of the world seems even more alien.”