Disclosing People’s Pay

post # 96 — June 2, 2006 — a Managing post

Adam Smith discusses whether or not a firm made up of partners (ie owners) should disclose to everyone what each partner is paid.

I believe it is almost always misleading to do this, and often injurious.

It is relatively easy to disclose what each person has been paid – it’s not so easy to disclose all the factors (quantitative and qualitative) that were taken into account in arriving at the compensation decision. As a result, people are inevitably left to speculate (and inevitably misinterpret) WHY individual A got less than individual B.

This ambiguity becomes particularly invidious when the compensation setting group has (appropriately) taken into account some very personal factor that may have influenced performance, but which it would be entirely inappropriate to disclose openly.

As I discussed in Managing the Professional Service Firm (my 1993 book), it is meaningful for the compensation-setting group to disclose and discuss patterns and trends in compensation, but individual results will always be literally “meaning-less” without knowing the reasons for the decisions. It may be symbolically or legally necessary in some firms because of the partners’ ownership status, but that doesn’t make it of any constructive value.