Fictional clothing retailer RightNow! faces a crisis: A vindictive employee published everyone's salaries—exposing inequities that had crept into the compensation system, and sparking outrage among workers.
Could RightNow! turn this disaster into a positive opportunity by creating a
On the other hand, a radically open salary system
• a fair compensation system based on actual performance
• employee understanding of the business (e.g., why payroll is usually the largest cost; why certain employees earn more)
• a culture of trust, as employees and senior managers share more information
Or should RightNow! keep its system closed and address inequities in more traditional ways?
RightNow!—and any company—must balance the inherent tensions between tight labor-market demands and perceived inequities within the firm—i.e., external market value versus internal equity. For example, young employees with "hot skills" are often recruited from the outside and paid 25% more than older, more loyal, and longer-standing employees within the same department.
Four commentators on this HBR case offer advice about experimenting with compensation systems' openness and flexibility, and competing for talent more effectively:
• Emphasize non-monetary advantages of working for your company—professional challenges, stimulating colleagues, growth, fun, excitement.
• Recruit individuals who are ready for the job but have not yet been promoted to an equivalent level in their own firms. This "value hiring" lets you grab "bargains"
• Create and publish salary ranges ("bands") for all jobs. Involve employees in developing this system, including setting the ranges and establishing the criteria for merit increases within each range.
• Create enough variation within each range to absorb labor market and individual performance differences. This lets everyone know the potential of their current jobs and their career opportunities within the company—without knowing what others make.
• Post job salaries, but without attaching individuals' names. This protects people's privacy and keeps competitors from easily knowing what to offer to poach particular individuals.
Compensation transparency is most useful if it ensures that employees know
• To dramatically boost productivity, negotiate employees' pay project by project, based on the value of work done. Define objectives and tie rewards to meeting them.
• Eliminate your Human Resources department and let managers and employees set salaries—but
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