We talk a lot about pay transparency. It seems like half the time half of compensation professionals argue for more and half argue for less. New Belgium Brewing is a company who does a great job at being open. In fact, they are so good that they are an example used by the media, other companies and even the U.S. Government. More importantly, they seem like great company. Kim Jordan, the cofounder of New Belgium, has made it a priority to make sure the company is always paying a living wage. Her passion for making sure everyone at New Belgium has the opportunity to thrive is an essential component of the company culture. This carries through to every level at the company and through succession planning as well. Coworkers are open and concerned about how decisions and actions may impact the future of the company and the success of the people with whom they work.
Transparency isn't a buzzword at New Belgium Brewing. It is part of their DNA. When other companies and consultants ask me what I think about expanding pay transparency, my mind immediately turns to New Belgium and the efforts they have made, and continue to make, on this issue alone. Transparency isn't about pay. It’s about how the business works. It’s about how decisions are made. It’s about what people are allowed and expected to know. It’s not just about being an open book, it’s about teaching people to read and appreciate the book.
At most small and mid-sized companies, pay eats up the majority of all revenue. In many cases, 65-75% of every dollar that comes in is paid back out to employees. For pay transparency to work, those employees must understand where their pay is coming from and how much money is left for everything else after they have been paid. HR and compensation professionals have to be open with fact that holding raises to 1% below the market rate gives other departments a material increase in their budget.
We get so caught up in our own math that we forget everyone else’s. For example, let’s assume a company makes $30Million in revenue. Assuming a compensation run rate of 70% of revenue, the company would spend $21M on pay and $9M on EVERYTHING ELSE. Now assume the market says that pay should increase by 3% ($630K). If the company instead gives a raise of only 2% ($420K), it gives some other department or departments more than $200K in additional spending room. For this company, that may be the difference between a successful project or a failure in the upcoming year.
Transparency is about building a business where employees recognize this before you explain it. They may even come to you and suggest your compensation solution before you can float it by them. When it is proposed, they help make or support decisions with more pragmatism than you may find with management teams at other companies.
New Belgium pays competitively throughout the company. They also spend the time and money to keep educating and improving their staff. Before you decide to support or reject pay transparency at your company, know that it can work well and that it takes real effort and commitment. The video below is from a PBS piece on New Belgium. This link is from the US Department of Labor blog series titled, “Your Voice at Work.” You may want to take a look at both (and maybe treat yourself to a cold beverage) before you decide to act.
Dan Walter is the President and CEO of Performensation and is committed to aligning pay with company strategy and culture. Grab a copy of Dan’s new comprehensive issue brief, Performance-Based Equity Compensation. Dan has also contributed to “Everything You Do in COMPENSATION IS COMMUNICATION”, with fellow Comp Café writers, Ann Bares and Margaret O’Hanlon. And if you’re still interested in things written by Dan, he has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.