by Kevin Kruse
But the candidate we really want says she’s making more than that already so we assume we were wrong and pay her $85,000 a year.
When we go to hire Programmer #2, our desired candidate tells us he’s making $65,000 a year. So do we pay him $85,000, the same as Programmer #1? No, we feel like that’s too big a jump and want to save some money so we hire him at $72,500.
When it comes to Programmer #3, we are desperate. Everyone is working around the clock, our clients are mad, we need help! We find someone but she asks for $90,000. We gulp, and pay it.
Before you know it we have three programmers doing roughly the same job but with very different salaries: $72,500, 85,000, and $90,000. And this example doesn’t account for the fact that we make mistakes in judging talent. We think we’re hiring a supertalented graphic designer but it turns out he’s more like an average graphic designer. Do we fire him or insist on a pay cut? No. What about the young gun who comes in untested and at a low salary but is a fast learner, works eighty hours a week, and clients love him. Do we immediately double his pay to reflect his value? No. Even worse would be variations in pay because of conscious or unconscious bias.
The only reason we cringe with the thought of openly sharing salary information is because we fear the reaction of our employees, and the only reason they would react badly is if you have a totally subjective, unfair compensation system. I was guilty as charged.
To get comfortable with the idea of transparent salaries, realize how many people already work that way. All federal workers in the United States are paid according to GS Pay Schedules which consist of fifteen pay grades, and ten steps within each pay grade. Oh, you’re a human resources officer in the Department of Justice? That’s a GS13 role so that means you make an average of $73,177 before adjustments. Oh, you’re a brigadier (one star) general in the US Army? Your rank is also your pay. In the publicly available Military Pay Scale I see that one-stars are paid at the O-7 level which is $8,438.10 per month.
That’s government and the military, but did you know all nonprofits in the US have to reveal the compensation of all their top employees? Instead of filing a “tax return,” because they don’t pay taxes, nonprofits file IRS Form 990. And Part VIII asks for the compensation of all officers, highest-paid employees, and even contractors. And Form 990s are public information and easily located on the internet. This could be fun, let’s see…the CEO of the National Rifle Association made $1,241,515 in salary plus another $3,810,734 in long-term retirement-related payments (National Rifle Association 2015). The head of the Sierra Club makes $237,622 (Sierra Club 2015).
Even in the private sector, more and more companies are beginning to embrace salary transparency. The belief is that all the millennials talk openly about their paychecks anyway, and with websites like Glassdoor and PayScale, you’re only a few clicks from knowing if your current pay is in the ballpark of being fair.
Whole Foods co-CEO John Mackey introduced transparent salaries all the way back in 1986. Any Whole Foods employee can look up the salary of any other employee. In one interview he explained, “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.” He says he is indeed challenged by employees about pay discrepancies all the time, and he just explains how the higher-paid employee is providing additional value (Griswold 2014).
While Whole Foods shares their salary information internally, the leaders at software company Basecamp share their compensation system publicly. Basecamp cofounder David Hansson, in a blog post titled “How We Pay People at Basecamp,” states, “There are no negotiated salaries or raises at Basecamp. Everyone in the same role at the same level is paid the same. Equal work, equal pay” (Hansson 2017). He goes on to explain that they have five levels of programmers, from junior programmer to principal programmer, with clearly defined role requirements for each level. They determine market rates for each level from an online service and pay at the 95th percentile for each position (but they don’t pay bonuses). Market rates are based on Chicago, where their headquarters is, but employees are free to live anywhere they want and the pay isn’t adjusted based on geography.
Taking things a step further is the company Buffer, a maker of social media marketing software. Not only do they publicly share their compensation system, they share a spreadsheet showing the salaries of individual employees (last names removed). What’s interesting is how different the Buffer system is from the Basecamp system. In a blog post titled, “Introducing the New Buffer Salary Formula, Calculate-Your-Salary App and the Whole Team’s New Salaries,” they explain that for each role they have a formula composed of:
Base pay according to location-specific market rates
A four-level experience multiplier (e.g., if you are a “Master,” your base pay is multiplied by 1.3)
And an addition of $10,000 or stock options (Gascoigne and Widrich 2015)
Each year, rather than haggling over the amount of the annual raise, Buffer gives a 5 percent increase as a “loyalty” factor. On the day I check their salary spreadsheet, the highest-paid employee is Joel, the CEO living in New York City, at $218,000. And the lowest-paid employee is Alfred, Community Champion living in Singapore, at $59,112.
Although the differences in how companies standardize pay are interesting, the point is that having and sharing the system totally changes the conversation with and among the employees. Rather than, “I deserve more” or “I’m worth more than Sue, this is unfair,” it becomes a conversation around talent. The question now might be, “You’re classifying me as an intermediate programmer and I think I’m a master programmer.” The conversation becomes all about skills, accomplishments, and value.
All those years ago when my employees got an email with everyone’s salary listed in it I feared the worst. But to my surprise, not a single person came to talk to me about their salary. I’m not naive enough to think that there wasn’t some jealousy or even hurt feelings going around. But I’d like to think that while my salary setting was subjective back then, it was still grounded in skill and value.
RADICAL TRANSPARENCY DURING LAYOFFS
I hung up the phone, closed my office door, and put my head in my hands. It was the year 2000 and the dot-com bubble had burst. My partners and I rode the bubble on its way up, building a tech HR company with about $35 million in venture capital; in one year I went from managing about 25 employees to 250. We were growing at all costs and just months away from our initial public offering (IPO) when the NASDAQ began its epic crash. No IPO would be possible for a long time. My CEO called me to say that to survive we had to immediately go from a growth strategy to a cash flow–positive strategy, which meant I would immediately have to lay off a big chunk of my team. Some of the people I would let go had only been hired a couple of months earlier. I pulled the wastebasket closer to me in case I threw up.
How do you communicate to your team, and the outside world, during the worst of times? These days, with the internet and social media, you have to assume that everything you say will be shared with the public. Even if you’re addressing your employees, you have to know that your exact word-for-word memo, or email, or speech will be shared with every single customer, partner, and even the media.
When I sat alone in my office that day, I had to think through how many and who to let go, and also how I’d explain it to my remaining team members. I knew that the toughest times were also when radical transparency was most needed. I scribbled down the things I’d want to know if I was in their shoes.
What are the facts (e.g., who is affected)?
What are the real reasons or causes?
Are more cuts coming?
What happens next? What does the future look like?
Unfortunately, very few announcements from
company leaders address these points. Even fewer address them with clear, plain language. In July of 2014, Microsoft VP Stephen Elop unwittingly became the butt of jokes, and the poster child for how not to communicate layoffs, when he announced that 12,500 employees in his business unit would be let go (if you want to read the entire announcement I’ve preserved it at kevinkruse.com/bad-layoff-announcement).
The biggest problem with Elop’s memo is that it takes him eleven paragraphs and almost a thousand words before he finally says it, “We plan that this would result in an estimated reduction of 12,500 factory direct and professional employees over the next year.” Before getting to the main point of the memo, he restates Microsoft strategy, Nokia strategy, market segments, manufacturing locations, and more. Did he think the first eleven paragraphs were going to ease the blow? Did he think the first thousand words would make everyone come to their own conclusion, “Hey, we really need to fire some people around here!”
The second problem with Elop’s memo is jargon. Even though Microsoft (and the Nokia division that Elop led) is a technology company, even though everyone there is an experienced business professional, there is no reason not to talk like a human. Plucked from his memo:
We are the team creating the hardware that showcases the finest of Microsoft’s digital work and digital life experiences, and we will be the confluence of the best of Microsoft’s applications, operating systems and cloud services.
Our device strategy must reflect Microsoft’s strategy and must be accomplished within an appropriate financial envelope.
We plan to select the appropriate business model approach for our sales markets while continuing to offer our products in all markets with a strong focus on maintaining business continuity.
We plan to right-size our manufacturing operations to align to the new strategy and take advantage of integration opportunities.
Confluence? What the hell is a financial envelope? What does business continuity look like? And the classic, “right size.”
If the Microsoft memo is the wrong way to announce layoffs, what’s an example of the right way?
Buffer, founded in 2010, offers a tool that helps people to share and schedule their social media marketing posts throughout the day. Although a relatively new and small company, they’re beloved by employees and customers alike, which made it especially tough when they announced the layoffs of 11 percent of their workforce in June of 2016. The full announcement can still be found on their website at https://open.buffer.com/layoffs-and-moving-forward/ and I’ve summarized key points below.
Unlike the Microsoft example, Buffer CEO Joel Gascoigne gets right to the point. Right in the post headline he announces, “Tough News: We’ve Made 10 Layoffs. How We Got Here, the Financial Details and How We’re Moving Forward” (Gascoigne 2016).
Void of jargon, reading the Buffer memo is as if Gascoigne is explaining the situation to you personally over a beer. He opens with:
The last 3 weeks have been challenging and emotional for everyone at Buffer. We made the hard decision to lay off 10 team members, 11% of the team. I’d like to share the full details of how we got here, and the way we have chosen to handle this situation to put Buffer in a healthier position.
When it comes to the reason for the layoffs, there is no mumbo-jumbo about right-sizing or staying agile or rapidly changing markets. With textbook candor, the CEO put the blame on himself.
It’s the result of the biggest mistake I’ve made in my career so far. Even worse, this wasn’t the result of a market change—it was entirely self-inflicted….The fact is, the challenge that I created has now irrevocably changed people’s lives.
Over the course of the last year, Buffer went from 34 to 94 people….Reflecting on it now, I see a lot of ego and pride reflected in that team size number.
And if that isn’t honest enough, Gascoigne goes on to list all the other ways they failed: lack of accountability, trust in the financial model, appetite for risk, and team restructuring.
I’ve never seen company leaders publicly explain their decision making for how they picked the people to be let go. In fact, I’ve been asked by people I’ve laid off questions like, “Why did you pick me instead of Dan? Is it because I’m old?” The Buffer blog post actually shares a decision tree—an actual picture of the process—that walks through how they looked at every single role. And if there was an area that had more people than they needed, they chose the employee with the least tenure in what they described as, “a ‘last in, first out’ approach in order to avoid any bias in selecting individual teammates.”
Critically, the announcement also gets specific when it comes to shifting the focus to a more optimistic future. Gascoigne lays out a dozen different changes that will save Buffer money (in addition to the layoffs) and even provides a graph that clearly shows, “We are excited to return to profitability, and I’m confident about the path we’re on now. Our bank balance is currently $1.3M, and this will help us grow it back to $2.1M by January 2017.” Total transparency with the numbers.
I no longer have the email I sent to my own employees back in 2000. I hope that it was brief, jargon free, and covered four main points:
This week we’ve laid off dozens of our team members; it was the hardest thing I’ve ever had to do and I’ll do everything I can to help them land at another great company.
We had to make the cuts because, to drive growth, we were spending more each month than we were bringing in from sales. We anticipated a large cash infusion from an IPO. With the stock market in decline, and no IPO happening, we have to preserve the cash we have left in the bank. We have to operate profitably moving forward.
There are no guarantees but we chose to cut deeply now so we won’t have to go through this again anytime in the near future.
While it’s been a painful week, our financials moving forward look strong. [I’d shared revenue, expense, and cash flow projections.] Regardless of what the financial markets do in any given month or year, we are the beginning of a technology revolution and our focus on talent management is the right one. I plan to bring value to our investors, customers, and employees for many decades to come.
THE TAKEAWAY
The hierarchical command-and-control structure, where information flowed up and decisions flowed down, made sense when the world moved at a slower pace. And in that environment, where competing for resources was a zero-sum game, one’s individual career could advance by withholding information from others. In today’s world marked by VUCA—volatility, uncertainty, complexity, ambiguity—organizations that survive and thrive are the ones that adapt to the changing environment in real time; they push information—including key metrics and financial information—as far forward as possible so frontline workers can make good decisions.
HOW MIGHT YOU APPLY THIS IF YOU’RE A:
MANAGER: Start with the basics. Are team members clear on your annual goals and quarterly objectives? Do they know how much your team’s budget is and what the limits are on spending for various areas? Do you share all other metrics that are being tracked for the team and the organization? When it comes to transparency on performance, have you been relentlessly providing feedback on how they can improve and advance in their careers? Have you asked them to critique your performance as a leader?
SALES PROFESSIONAL: Do you have the information you need to reply to customer requests quickly? Do you need to talk to company leadership about the rationale for current pricing, or the true reasons why deliveries are behind schedule? When customers view your business as a black box, they often assume there is much more profit and room to negotiate than there is. Worse, they may see you pull up in an expensive car or see the fancy company headquarters and assume that they are being taken advantage of. Make sure you are as transparent as possible with product costs as well as
company profitability and how it compares to industry standards and your competition.
SPORTS COACH: As an athletics coach you will increase the emotional commitment of your players when you are transparent about the “why” of your processes and decisions. Take the time to explain why you have rules about being on time. Explain why you have a dress code or other standards. Explain why you are choosing the drills you are using in a specific practice. When you have to make tough decisions—who’s your starting quarterback, who is going to make the team—explain your rationale.
MILITARY OFFICER: Trust is the intangible bedrock for success in the military: trust between troops, trust between soldiers and their leaders, trust between the military force and their nation. As a military leader, you must model and encourage transparent values-based decision making, encourage transparency by viewing many mistakes as learning opportunities, and share as much information as possible so that frontline troops are able to make strategic decisions.
PARENT: Being radically transparent as a parent can be tricky. We want our children to respect us, and we don’t want to accidentally encourage bad choices by letting them know about our bad behaviors when we were their age. But most families err on the side of withholding too much information. When my teenage daughters began to drive, I made sure to tell them about the two auto accidents I had that, while technically not my fault, I knew I had contributed to. Many illnesses including depression have a genetic component and our grown children would benefit from knowing what ails their parents and grandparents. If you want your kids to understand the value of money, perhaps you should share your monthly bills. If you want to encourage them to get a well-paying job, let them know how much you’ve made in different jobs throughout your career. If you want your children to feel comfortable coming to you in their times of crisis, they need to know that you can relate, and that you may have made similar mistakes to the ones they have made.
