Guest author Scott Gerber is the founder of the Young Entrepreneur Council.
There’s a lot of debate around whether or not businesses should be completely transparent about salaries, revenue and other traditionally confidential information. Companies like Buffer bare all, while other startups look for a middle ground.
There are pros and cons to each side. We polled a group of founders from YEC to see what they’re thoughts were about whether total transparency is a good decision, or one that would ultimately hurt the business. Their best answers are below.
1. Pro: It Encourages Accountability and Ownership
If you expect people to act like owners of the business, you need to give them information about how the business is doing, whether good or bad. It’s very difficult for people to feel a sense of ownership if they are siloed and kept in the dark about the fundamental operating metrics of the business, it’s revenue and it’s growth. By sharing those numbers—and treating people like adults who can maintain confidentiality—you will imbue a sense of ownership. Your team will get excited when they can see the impact of their day-to-day work and progress printed in black and white on your income statement. —Matt Mickiewicz, Hired
2. Con: Information Without Context Upsets Staff
In general, I try to keep a majority of our financial information under lock and key. It’s important to remember that your staff are not business owners, and aren’t going to view financial figures in the same light that you do. They don’t understand the bigger picture about expenses, salaries, why a client pays a certain amount, etc. Therefore, they don’t need to be privy to the information because it usually just makes them analyze and worry about things that are already under control. If they needed to view these types of financial figures, they would already be a business owner and not working for my company. —Cassie Petrey, Crowd Surf
3. Pro: It Filters Out Ill-Fitting Employees
Working for a startup means that the environment will be a little unorthodox. Some might find the environment a little too transparent. While this might seem like a downside, if they want to stay and challenge the status quo (and their salary), they know exactly what to do. Transparency will increase competition. It’s not up to you to stop your employees from competing with one another, but it’s your responsibility to make sure that no matter the outcome they feel motivated to work and try again. As an employer, you should reward improvement, and reward excellence—this is the perfect way to balance the pendulum. —Cody McLain, SupportNinja
4. Con: Salary Transparency Can Breed Resentment
It’s great to keep customers, investors, and employees up to date about how much revenue your company is making and where the cash flow goes. However, sharing salary information is going too far. Not all disciplines are created equal, and competitive pay rates will vary across different departments. Salary transparency doesn’t encourage innovation or teamwork—it encourages resentment and competition. If you make it clear what kind of work output is productive and valuable, new employees will naturally work harder to be recognized and receive raises. The only difference is that if you keep salary information private, they’ll also work with their teammates, instead of against them. —Jared Brown, Hubstaff
5. Pro: Salary Transparency Favors Gender Equality
More people in tech are realizing that women in the sector are historically at a disadvantage in salary negotiations—often being unfairly discriminated against. However, if a tech startup makes all the employee salaries known, and it’s clear that both men and women of the same rank, expertise, and education are being paid equally, both employees and consumers will trust that company more. On the flip side of the coin, there’s no place for wage discrimination to hide, as it’ll be perfectly clear if male employees are being paid more than female employees across the board. It’s a small change, and there’s more that needs to be done, but salary transparency can help promote equal pay. —Dave Nevogt, Hubstaff.com
6. Pro: It Supports a Level Playing Field
Being transparent allows employees to know the expectations. These are good to know up front and collectively. For example, in a sales environment, each employee’s achievements and goals should be transparent in order to encourage competition. This is especially important in a startup, because transparency within a smaller company makes each employee feel more valued and kept out of the dark. —Jayna Cooke, Eventup
7. Con: It Can Lead to Data Overload
The founders and management team need to come to consensus on how you define total transparency. This way, there’s consistency in information shared across the organization, and information withheld or overshared with only some individuals or departments. Total transparency can lead to data overload and relevancy issues, resulting in partial information uptake and therefore partial transparency. For example, we share high-level financial line items (revenue, COGS, expenses and net income) with employees, but we don’t share every line item (including salaries) because it’s often irrelevant and leads to some employees missing the important high level points. —Andrew Fayad, eLearning Mind
8. Con: It Can Be Distracting
Depending on your company, you might have some issues that will be stressful and distracting to a lot of people. Fundraising is probably the greatest example of this. It’s hard to focus on selling $20,000 products when you’re paying attention to a $2 million or $20 million funding round. Everyone’s attention will be on it, and a lot of people will not have the proper understanding of how likely a degree of failure is. Maybe pre-money is worse than it looked like at one point. Maybe that big investor did not come through. All of these can depress employees, particularly people not used to sales, for very limited benefit. —Ville Lehtonen, LabMinds
9. Con: It Can Create Turbulence
Transparency in an environment without communication and trust can create a lot of turbulence in group dynamics. If you are a startup at the fundraising phase and you communicate that to your team, they will get excited. If you then drop that proposal for reasons not very obvious to them and they don’t feel free to ask, then the climate is ruined. So it is good to share safely when you are at a progressed stage or when your audience and the environment created is mature. The same goes for all financial data. When there is uncertainty, it is better to keep some secrecy protecting the work atmosphere; if the data ia clear and you are there to answer all questions, then go ahead and share. —Yiannis Giokas, Crypteia Networks
10. Con: It Removes Room to Experiment
In a startup where you are trying to optimize costs, you might want to experiment with employees from different educational backgrounds to see where you can get the best ROI. For example, when you are hiring for sales, you might want to compare the performance of MBAs with non-MBAs. Of course, their salaries will be different and if you practice 100 percent transparency, it could lead to disgruntled employees. It’s similar with revenue. You may not feel as comfortable while experimenting with revenue streams because of the fear of your employees losing confidence in the company if the experiment fails. —Pratham Mittal, VenturePact
Photo courtesy of Shutterstock
This article was written by Scott Gerber from ReadWrite and was legally licensed through the NewsCred publisher network.