Should you decide yourself what you are paid?

Andrew Hill, management editor at the Financial Times, reports about Makers, a small London-based software engineering firm founded in 2012, where employees set their own salaries. 

Staff are invited to think about what they are worth, researching the market and discussing their role and performance with close colleagues. They then submit an “essay” justifying any pay increase (or decrease) to their team for comment.

But who does that work on a day to day basis? Few companies reveal how pay levels are set – and seemingly for good reason. The critics of more openness and transparency about pay levels fear it may cause envy and pettiness, because everyone thinks they are worth more than their peers.

Still, argues Hill, the latest research suggests not all those concerns are justified. Zoe Cullen of Harvard Business School and Ricardo Perez-Truglia at UCLA’s Anderson School of Management looked at more than 2,000 workers at a large commercial bank. They expected a level of resentment about pay differences. Instead, staff worked harder when they learnt how much managers a few levels above them earned. This motivational effect wore off, though, when they compared their pay with that of executives several promotions away. The reverse happened when staff learnt that their peers earned more than they did. People who found out the worker on the next desk was paid ten per cent more spent 9.4 per cent fewer hours in the office.

Based on these findings, companies should ensure pay bands are narrow for workers doing similar jobs. At the same time, they could benefit by advertising the rewards available to those who win promotion – and even widening the gap between bands. Prof Cullen suggests companies experiment by asking employees about their preferences for transparency.

Markers for example uncovered interesting gender differences: men apparently decide to increase their salaries by about five per cent more than women. The company stands by its system of mutual trust, but considers the possibility that a more traditional approach might be better. In August, the group agreed salary requests for 100,000 GBP or more would have to be signed off by the board. 

Read more on www.ft.com

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