In the age of transparency, it seems that one of the most closely guarded secrets at any small business is their payroll.
Most owners do not want team members to know what each other earns. They fear that this information would disclose inherent inequities in pay at the company and it would somehow cause a payroll revolt where everyone would ask for a raise at one time!
However, new studies are actually showing the pay secrecy can actually hurt, not help company performance.
Emiliano Huet-Vaughn, at Middlebury College found that employees that were shown their earnings and how they compared with others generally worked harder and increased their performance. A second study from Elena Belogolovsky of Cornell University and Peter Bamberger of Tel Aviv University revealed that keeping pay secret also resulted in decreased employee performance.
This is not to say that the small business owner should publish their company payroll tomorrow. Instead, they should experiment with different stages of disclosure which can be spread over months or years as they feel comfortable.
- Give permission. Let employees know that the company’s culture supports people talking about and comparing their level of pay with a coworker. (It is interesting to note that since 1935, the National Labor Relations Act protects employees’ right to discuss their wages.) This is a voluntary exercise for team members that want to participate.
- Publish pay scales. Show the ranges that each position and experience level pays. This gives a spectrum of pay so employees can begin to estimate what other people earn in various parts of the company. This assists them in knowing what they can strive for in terms of pay increases.
- Tell all. Disclose what each employee earns including the owner. This will ensure that team member knows exactly how their compensation compares. If each team member is paid fairly by the relative value of their position and performance, this can actually motivate the staff as studies have suggested.
Moreover, small business owners need to manage their company like the payroll information is public even if it is not. This will ensure pay for performance equity across many different job functions. The fastest way to destroy trust is to pay people vastly different salaries for the same job, same experience and equal level of performance.
Do you publish salary information at your company?
