Category: Leadership

Leadership is an insanely important discipline. Here you’ll find the thought, tools and tricks of the trade of great leaders.

  • Why secret salaries are a baaaaaad idea

    Secret salaries

    It’s a golden rule in most businesses that salaries must be kept secret. Except for a few heretics it is almost universally accepted that mayhem would ensue in the workplace if people knew what their co-workers, their managers or – gasp – the CEO was making.

    Making salaries open inside a company instead seems like a wild idea sure, but it makes a lot of sense and brings advantages for both the workplace and for its people. Read on to see why.

    The case against secret salaries

    There are three major reasons why secret salaries are silly:

    1. It frustrates employees because any unfairness (real or perceived) can’t be addressed directly.
    2. They’re not secret anyway. People talk, you know.
    3. It perpetuates unfair salaries which is bad for people and for the organization

    Let’s look at each of these.

    If Johnson over in production is making 1.000 more a month than I am and the CEO is making 22 times what I’m making, then hopefully there’s a good reason for it – one that I as an employee am entitled to know and capable of understanding. So why are salaries treated as state secrets?

    The main reason may precisely be that they’re not currently fair and therefore making them open seems dangerous to many workplaces. Maybe Johnson is making more than me, not because he does a better job, but because he drives a harder bargain when it comes time to negotiate salaries. Or sucks up to the boss. Or has some pictures from the last christmas office party showing the VP of marketing and an intern in… never mind. That doesn’t seem fair, does it? We can all agree, I think, that it makes much more sense to determine salaries based on people’s value to the company.

    I have worked at two different companies where salaries were secret and guess what: They weren’t. Most people knew what most others were getting. In one company I consulted for, the IT department had even found the Excel spreadsheets HR kept the salaries in. They knew what everyone was getting.

    And here’s the problem: If Johnson’s salary is (unfairly) higher than mine, and secret, I can’t complain to my manager about it because I can’t admit that I know about it. When a company sets up a situation where people can see the unfairness but can’t address it directly, or even discuss it openly, they’re rigging the system for maximum frustration.

    Companies must attempt to pay their people as fairly as possible. You might think a company should try to pay people as little as possible, but companies who subscribe to that philosophy must be prepared to steadily lose all their good employees to competitors willing to pay people what they’re worth. A company must attempt to pay each employee a fair salary, ie. one that matches the employee’s skills, the market average and other employees inside the company. In other words, the company itself has a vested interest in keeping salaries fair, and keeping salaries secret makes that nearly impossible.

    The case for open salaries

    Making salaries public (inside the company of course) has some major advantages:

    1. Salaries will become more fair. The system gets a chance to adjust itself.
    2. It will be easier to retain the best employees because they’re more likely to feel they’re getting a fair salary.
    3. The pressure is on the people with the high salaries to earn their keep. Everybody has to pull their weight – the higher the salary, the larger the weight.

    I believe on a very fundamental level that openness is better than secrecy, in life and in business. I’m not naïve enough to share all information all the time, but my chosen approach is “Let’s make everything open by default and only make those things secret that absolutely need to be”. Would I share my list of prospective clients with my competitors? Nah. Would I share it inside the company? Heck, yeah!

    So when I co-founded an IT company back in 1997, we decided right from the beginning to make salaries open. We even had a page on the intranet where everybody could see what everybody else got. And yes, this did cause some discussions along the lines of “Hey, why am I getting less than Johnson, my work is at least as good at his”. We took those discussions seriously and we either clarified the difference in salary (eg. “Johnson gets more because his clients are consistently more satisfied than yours”) or we adjusted the salaries to match.

    Semco is a Sao Paulo-based company of 3.000 people who’ve gone one step further: They allow employees to set their own salaries. No really, they do! This works only because all salaries are open. I could demand a high salary and get it but I’d better be showing results because people are sure to be watching those who make a lot of money. That’s a business experiment only for the truly daring enterprise, but Semco has demonstrated for the rest of us that it can work.

    Ricardo Semler, the owner of Semco said this about the value of discussing salaries openly:

    Salaries are a sensitive subject, but open communication is important enough that it should be tested, even if there is a price to pay. It’s at the very heart of a shared culture. If discussion of salaries is taboo, what else is off limits? The only source of power in an organization is information, and withholding, filtering, or retaining information only serves those who want to accumulate power through hoarding. Once an e-mail is not circulated, or if it is edited, then illegitimate pockets of power are created. Some people are privy to information that others don’t possess. Remove those pockets, and a company removes a source of dissatisfaction, bickering, and political feuding.
    – Ricardo Semler in his excellent book The Seven-Day Weekend

    You tell’em Ricardo. Making salaries open opens yet another pocket of information that the power-hungry would otherwise use to consolidate their positions – to the detriment of co-workers and the organization.

    So come on: Make salaries public. Put them on the intranet. I dare you! Why keep them a secret?

    There is one requirement for open salaries to work though: Employees must know what factors influence salaries. Are they based on customer satisfaction, hours worked, quality, sales figures, seniority, skills, commitment to the compay, education, etc… What matters when setting salaries and what doesn’t matter? If the company has not clearly stated this, comparisons are meaningless. It is of course management’s responsibility to know and to publicize the factors that determine employees’ salaries.

    In our company we decided this together, and we agreed that the most important factors would be customer satisfaction and commitment to the company and that formal education and seniority didn’t matter. We put this in a document on the intranet as well. I can safely say, that making salaries open was one of the best things we did for our company and it almost made salary a non-issue – it was certainly nothing that caused us any frustration or troubles.

    So try it: Make salaries open. I double-dare you.

    UPDATE: This post sure generated a lot of comments. I love it! I’ve posted a comment round-up here.

    If you liked this post, I think you’ll also like these:

  • Quote

    Semco has no official structure. It has no organizational chart. There’s no business plan or company strategy, no two-year or five-year plan, no goal or mission statement, no long-term budget. The company often does not have a fixed CEO. There are no vice presidents or chief officers for information technology or operations. There are no standards or practices. There’s no human resources department. There are no career plans, no job descriptions or employee contracts. No one approves reports or expense accounts. Supervision or monitoring of workers is rare indeed.

    Most important, success is not measured only in profit and growth.

    – Ricardo Semler

    And yet they increased annual revenue between 1994 and 2003 from $35 million a year to $212 million. Read more about Semco here.

  • Top 5 business maxims that need to go

    Same same

    It ain’t what you don’t know that gets you into trouble.
    It’s what you know for sure that just ain’t so.
    – Josh Billings (or Mark Twain or Artemus Ward or…)

    Much well-known business advice is sadly obsolete but can still be found in articles, business books and, not least, in daily use in the workplace. It seems that some companies are still guided by thinking that is sadly out of date – if it was ever true to begin with.

    The worst of these old maxims are not only wrong, they’re bad for people and bad for business. Businesses who use them are making their employees unhappy and are harming the bottom line.

    Here’s my pick of the top 5 business maxims in serious need of an update – with a suggested replacement for each.

    UPDATE: Now there’s also a Part II post with 5 more horrendous pieces of business advice.
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  • Make your organization happy

    Hal Rosenbluth had made a provocative decision: As CEO of Rosenbluth International, a corporate travel agency employing 6.000 people, he decided that his company would put the employees first. Where other companies aim first to satisfy customers or investors, Rosenbluth made it their first priority to make their employees happy.

    The results were fantastic. Record growth, record profits and, most importantly, customers raved about the service they got from Rosenbluth’s happy employees. Hal Rosenbluth explained the company’s approach in a book whose title elegantly sums up his philosophy: “Put The Customer Second – Put Your People First And Watch’em Kick Butt”.

    A company’s commitment to its values is most thoroughly tested in adversity and Rosenbluth hit its share of adversity right after 9/11. Overnight, corporate travel was reduced to a fraction of its former level and it recovered more slowly than anyone predicted.

    Rosenbluth tried everything in their power to avoid layoffs. They cut expenses. Staff took pay cuts and so did managers and executives. But in the end they had to face it: Layoffs were inevitable and they decided to fire 1.000 out their 6.000 employees. How do you handle this situation in a company that puts its people first?

    In his book’s most moving chapter, an epilogue written after 9/11, Hal Rosenbluth explains that though layoffs don’t make employees happy, not doing the layoffs and then going bankrupt at a later date would have made even more people even more unhappy.

    Hal Rosenbluth recounts how he wrote a letter to the organization explaining the decision and the thinking behind it in detail. The result was amazing: People who’d been fired streamed into Hal’s office, many in tears, telling him they understood and thanking him for their time at the company.

    Rosenbluth’s letter also contained a pledge: That those remaining at the company would do everything they could to bring the company back on track so they could rehire those who’d been fired. Six months later, they’d hired back 500 out of the 1.000 and the company was solidly on its way to recovery.

    Choose happiness

    Once you’ve made yourself happy at work, it’s time to spread that good mood inside the organization and make more people there happy at work. This is obviously a bigger job but it is entirely possible and while some companies are born happy, many more are made happy somewhere along the way.

    The next few chapters are for leaders at different levels, who want to spread some happiness in their team, department, division or, heck, clear across the entire business.
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  • Think a raise will make you happy? Think again!

    Rich. But happy?

    Most people think that having a higher income would make them happier. They’re wrong!

    That is the conclusion of a study by Two Princeton professors, economist Alan B. Krueger and psychologist and Nobel laureate Daniel Kahneman, who say that:

    The belief that high income is associated with good mood is widespread but mostly illusory. People with above-average income are relatively satisfied with their lives but are barely happier than others in moment-to-moment experience, tend to be more tense, and do not spend more time in particularly enjoyable activities.

    The problem is that people still act on their mistaken belief that making more money means being happier. In short they choose income over happiness:

    Despite the weak relationship between income and global life satisfaction or experienced happiness, many people are highly motivated to increase their income. In some cases, this focusing illusion may lead to a misallocation of time, from accepting lengthy commutes (which are among the worst moments of the day) to sacrificing time spent socializing (which are among the best moments of the day).

    Which is just a fancy way of saying that you may think that switching jobs to get a 25% raise in return for a 2-hour commute or a 70-hour work week or ten days a month on business travel is a good deal. You’re wrong. You’d be happier with a lower salary and more time with your friends and family.

    So if you’re trying to make yourself happy at work by chasing that raise, bonus or incentive, your strategy is doomed to fail. The same goes for managers trying to increase their employees’ happiness, motivation and productivity through the same means. It won’t work! It takes something else to make people happy at work. I wrote about more about it in these two chapters of the Happy At Work Book:

    Read more about the study here.

  • Great Discussion on Corporate Hierarchies

    On his blog The Mutualist, Kevin Carson has a great summary of a previous discussion on my blog about the need for hierarchies in organizations. His running commentary on the discussion is priceless – go read it!

    The discussion Kevin summarizes can be found in these two posts:

    He ends his summary with a deeper question: Why do organizations have to grow so big that they need hierarchies to begin with. Damn good question, Kevin. I give a few observations in a comment on his post.

    Is this a distributed conversation or what? :o)

  • A model for happiness at work

    A simple model for happiness at work

    A simple 3-step model shows what it takes to make a workplace happy, and it’s shown in the figure below.

    Happy model

    The model has three layers, three areas which make a difference to people’s happiness at work. Each of these layers are important, but one is often ignored – and it happens to be the most important one.
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  • Jerks at work – and five ways to deal with them

    Guard dog

    CEO Hal Rosenbluth was once about to hire an executive with all the right skills, the right personality and the perfect CV. His interviews went swimmingly and he’d said all the right things, but something about him still made Rosenbluth nervous, though he couldn’t put his finger on just what it was.

    His solution was genius: He invited the applicant to a company softball game, and here he showed his true colors. He was competitive to the point of being manic. He abused and yelled at both the opponents and his own team. He cursed the referees and kicked up dirt like a major league player.

    And he did not get the job.

    (From Hal Rosenbluth’s excellent book The Customer Comes Second).

    Jerks at work and how to lose them

    Let’s make one thing perfectly clear: The vast majority of people in any given business are nice. They’re helpful, sympathetic, likable and quite simply good people. Only a tiny, tiny minority are consistently unpleasant or abrasive.

    You sometimes hear in business that “nice guys finish last” ie. that in a cutthroat, dog-eat-dog (hence the picture above) business climate you need to be something of a jerk to get results. Consequently people with difficult or abrasive personalities are tolerated (or even celebrated) in many organizations because “they may not be likeable but they get results”.

    I beg to differ. Jerks have no place in the modern business world and cause much more damage than they’re worth. This is not a matter of namby-pamby, soft-shoe “why can’t we all be nice” thinking; it comes down to the fact that jerks are bad for the bottom line! Luckily, many people and companies are starting to realize this and are doing something about it.

    This blogpost presents five different anti-jerk approaches that every workplace might consider.
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  • Quote

    Work had to be enjoyable on a daily basis. We all had to come to work on the balls of our feet and go up the stairs two steps at a time. We needed to be surrounded by people who could dress whatever way they wanted, even be barefoot. We all needed to have flextime to surf the waves when they were good and take care of a sick child. We needed to blur that distinction between work and play and family.

    – Yvon Chouinard, founder of Patagonia, in his excellent book Let My People Go Surfing

  • Does he or doesn’t he?

    Lazy dog

    Some of Fred Gratzon’s readers refuse to believe his claim that he’s the laziest man in North America. If he is, then how could he have created two successful multi-million dollar businesses? Fred’s answer is classic:

    I did not do it with hard work. I did not do it by busting my butt. I did it by having fun – so much fun that people were attracted to that fun. I then picked the most competent attractees to be on my team and off we went. Whatever “hard work??? there might have been, I had long since turned into a game and we had fun “playing??? it.

    Read Fred’s post – it’s excellent.

    That’s a blueprint for happiness at work and success right there! I agree 100% and wrote a post a while back on why laziness is the major force behind my success and happiness. Also read my review of Fred’s brilliant book The Lazy Way To Success.