Should Companies Disclose Employee Compensation?

 
 
Companies prefer to keep compensation information private. By doing so, are firms hurting their ability to create a transparent culture? asks James Heskett. What do you think?
 
 
by James Heskett
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Organizational transparency is a much contested topic in boardrooms and lunchrooms these days, with two primary questions confronting leaders:

1. How much information should be shared inside the organization?

2. Do we have a choice?

A recent example suggests that the disclosure debate might well be extended to information that generally has been considered off-limits: compensation data.

Recently, film director Ridley Scott had to reshoot scenes in All the Money in the World after star Kevin Spacey was in essence fired following accusations of previous sexual misconduct. Christopher Plummer was hired to replace Spacey and reshoot scenes with co-stars Mark Wahlberg and Michelle Williams, who agreed to return to the set. Their pay was negotiated separately and privately but by representatives of the same agency.

The result, as is widely known now, was that both actors agreed to reshoot the scenes for the actor’s equity base pay of about $80 per day. But Wahlberg’s agent, unbeknown to Williams, negotiated an additional $1.5 million fee. The situation came to light when the negotiation leaked. (The dispute was apparently resolved when Wahlberg agreed to donate his $1.5 million to Time’s Up Legal Defense Fund.)

This Hollywood soap opera raises an interesting question. If the All the Money initial pay arrangements had been known in advance, would an embarrassing situation have been avoided entirely? Are such irregularities waiting to be uncovered in other organizations that don’t make compensation information available to their members?

The case for sharing

Research has shown that information-sharing can aid innovation, foster trust, and contribute to an organization’s agility in a fast-moving competitive landscape. It also can build cohesion among employees and provide them a shared sense of mission.

Vineet Nayar, former CEO of India-based HCL Technologies, is a firm believer in sharing important information throughout an organization. As CEO, for example, he shared his 360-degree performance evaluation from peers and subordinates with HCL’s 50,000 employees as part of what he called “reverse accountability.”

Ray Dalio, founder and head of the highly successful investment company Bridgewater Associates, believes in a practice he calls “radical transparency.” That means “giving most everyone the ability to see most everything… (to reduce) harmful office politics and the risks of bad behavior … more likely to take place behind closed doors than out in the open.” As described in his remarkable book Principles, Bridgewater practices what Dalio preaches, for example, by videotaping all meetings. The tapes are available to meeting participants and others who can then study effective decision-making behaviors (as described by the many principles set forth by Dalio in his book) and, if necessary, resurrect the truth.

In the current climate encouraging increased disclosure, would for-profit organizations be better off emulating their governmental organization counterparts, where compensation is public information, and there are neither secrets nor surprises? In publicly held companies, it would extend a practice already required of the five most highly compensated executives in the organization.

Given Dalio’s devotion to radical transparency, we might assume that he would also be in favor of sharing such things as compensation data. If so, we would be wrong. Bridgewater does not share information when it determines the value of sharing would be low and “the distraction it would cause would be significant.”

This prompts the subject of our conversation today: Should compensation data be shared inside organizations? On what should a decision depend? How far down the organization should such transparency extend? What do you think?

References:

Adam Bryant, He’s Not Bill Gates, or Fred Astaire, The New York Times, February 14, 2010, p. B2.

Ray Dalio, Principles: Life and Work, (New York: Simon & Schuster, 2017)

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