Pros And Cons Of Self Set Pay And Transparent Financials
On the face of it, both internal transparency of the company’s financials and individuals setting their own pay seem to have a lot of advantages. While this is true, there are also challenges connected to both practices. Here is a brief list of pros and cons connected to self-set pay and transparent financials which may help you make a decision whether to look at implementing them in your own business.
Advantages
Empowerment of your people to understand the financial dynamics of the organization. This will become true particularly if you introduce some form of financial education accessible to all.
No toxic political dynamics arising from selective and limited access to financial information. No water cooler conversations about who is being paid what or who recently got a promotion because of political advantage.
More fairness and equality around pay and promotions. Eliminated (or, in the least optimistic case scenario, reduced) gender and the socioeconomic pay gap.
Setting people’s pay is no longer the responsibility of the founder (or MD). Having selected their salary themselves people realise how much effort goes into the process of deciding on fair remuneration. They are also less likely to complain about what they are paid!
As nothing is hidden everyone has the potential to feel more ownership of the business. People care more about how money is being spent and feel more protective about the business in general.
Financial transparency and self-set pay uplift your values as a business and the whole company culture. It becomes a call for more integrity, mature, thought-through decisions, and an increased sense of responsibility. People who are treated like adults behave like adults.
Transparent financials and self-set pay become a flagship of your company culture, something you can talk about. It’s unlikely your competitors will follow suit and so your cultural innovations are going to become a strong competitive advantage. Get ready to be interviewed by the press and asked about your culture by fellow founders over and over again.
Challenges
Possible anxiety about fluctuations in your company’s cash flow which is now exposed to the eyes of everyone in the company, including those who have never run their own business.
A need to create supporting structures around self-set pay to help your people make an informed decision, driven by a thorough and fair assessment of their own performance and the job market dynamics. The support available needs to encompass peer-to-peer feedback which also needs appropriate systems built around it to be helpful and effective.
In the case of self-set pay - strain on the individual making this responsible decision in the knowledge that the result of it will be transparent to the rest of the organisation. Also, reduced billable time given individuals are now responsible for engaging in the pay process and all it involves - from researching the job market to collecting feedback from peers.
You may have to face uncomfortable conversations about your company’s financials as a founder, as people learn how the money is spent in your business. Likewise, your people need to be prepared for difficult conversations with their peers concerning their pay which they had made a decision on.
Conflicts, for example, to do with performance, will rise to the surface much quicker in a transparent environment (which is not necessarily a bad thing!). All the buried deep tensions will need to be addressed and resolved.
You can’t put a financial plaster on things anymore by, for example, paying somebody more in order to stay in their job instead of leaving.
You need to up your standards in terms of your personal behavior and integrity in relation to the company’s financials (e.g. what expenses you charge to the company). Otherwise, you risk setting a poor example for the rest of the team.
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