Open Book Accounting

13 Oct

Good chat with a colleague tonight. One of the topics was open book accounting, which I’m very much a fan of. I feel that a) company financials should be open to all employees, and b) all salaries should similarly be open to everyone.

Basically, everyone in the company should know everything about the fiscals, and exactly what everyone else earns. My thinking is if the people you’ve hired are worth it, they have nothing to fear from having other know what they earn. It’s a completely democratic way of doing business. I’ve never liked the secrecy around salaries. If we remove the ‘salary negotiation’ skill we’re left with ‘worth’, basically.

It’s a radical approach, but I’m convinced it’s the right one.


6 Responses to “Open Book Accounting”

  1. Grand Master Thump October 14, 2006 at 2:26 pm #

    Not so sure myself, I think most people, including myself, have a healthily over inflated opinion of their own importance. How many rants have we heard down the pub about how the compnay is going to fall apart when I leave etc etc. I am yet to see a firm go under because someone left. Add in a rating mechanism for which an employee is considered more or less worthy than another and I think you are in for a world of back biting and disgruntlement except for those that have top spot. The solution you end up with is a rigid pay structure so that no one can be offended and potentially get the hump. The problem with rigid pay structures is they dont allow you to reward individual merit or not reward those who are meerly mediocre but have fulfilled the criteria. Only with a bunch of seriously cool, centred and confident people would it have the effect of stopping muppets who talk and dont achieve get better salaries than those who are just honest/humble.

    I admit the whole ‘your salary is confidential’ crap from management pisses me off. If I want to discuss it with a fellow employee then I will, if they want to let me know theirs, they will.

  2. kaimac October 14, 2006 at 10:25 pm #

    The idea though is that you hire only good people, and that you pay those people what they’re worth. If people are being underpaid you should pay them the right amount. Make it public and let their peers be the ones to judge them, removing the usual veil of secrecy.

    People wouldn’t get the hump because they’d be paid what they’re worth: fair market rate. It’s not going to be a surprise to anyone that there are people in the company who earn more than them, right? But by making it public, you’re forcing people to live up to that salary. Muppets who talk and don’t achieve would be swiftly driven out.

  3. marc sirkin October 16, 2006 at 9:08 am #

    lots of ego wrapped up in what people make.

    i think it’d be near impossible to “convert” a large company to this – you’d most certainly have a handful of really disgruntled, upset employees.

    if you were to start up a new company though I could see an interesting dynamic develop quickly.

    what you describe is a very hippie notion – i like it for that reason alone. practically speaking, can you even find enough of the “right” people to staff a growing company?

  4. Grand Master Thump October 16, 2006 at 9:31 am #

    The other issue, is people will never accept salary reductions. What if you find out that the guy who you hired and thought was going to be fantastic turned out not to be quite as fantastic as first thought, still a valuable member of the team just not superman. So what do you do, drop their salary in which case you are likely to see them walk away or raise everyone elses?

    I think in the right group salaries will simply not be a taboo subject and people can be mature and honest about their own contributions and their relative worth. I get the idea that it might be a good incentive to live up to your salary if you are known to be making more than anyone else. But, even in companys where it is known that a certain individual is paid substantially better than all others, I think those individuals find it easy to justify their renumeration to themselves rather than feel guilty about it.

    Again I can only see this working in a small group of centred people. Humans in general are just not naturally unselfish and honest, we are all trying to achieve better than the next guy at the genertic instinct level. And whilst it would be nice for everyone to be cool about things, there is always one arsehole who is going to either play the system or cause problems. Even in two person business structures (partnerships) that have full disclosure, the cause of collapse is often seen as one side not pulling their weight.

  5. kaimac October 16, 2006 at 10:04 pm #

    marc – agree it would be real hard to implement in an established company, but could still work, I think. May be some pains along the way, but the upside makes it worth it. If there were real injustices in salary, they’d be rectified. If the injustices were only perceived, the disgruntled would move on.

    thump – i understand what you’re saying, *but* I honestly think that if it was all out in the open, we’d go a long way towards getting rid of the jealousy etc. As long as there was good reasoning behind paying everybody what you pay them, then decent people will be fine with that. I understand that people are going to get paid more than me… I understand the business has different needs at different times. What I’d like is for that to be made public, so that everybody better understands those needs.

    As for your example: if somebody didn’t live up to what I initially expected of them, it would be up to them to work out how to live up to that expectation, and salary.  They would be being compared very publicly to their peers, so it would fall on them to remedy the situation.  Thoroughly transparent.

  6. roach October 17, 2006 at 5:33 pm #

    i think this is a nice ideology, but in practise would be total carnage.

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