Episode 550: When Salaries Aren't Secret : Planet Money What would it be like if everyone at your office knew what everyone else earned? On today's show, we hear about a company where salaries aren't secret.
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Episode 550: When Salaries Aren't Secret

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Episode 550: When Salaries Aren't Secret

Episode 550: When Salaries Aren't Secret

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ROBERT SMITH, HOST:

A couple of years ago, a company in London called Pimlico Plumbers asked its workers to try an experiment, an experiment that you probably do not want to try in your own office.

KARL PLUNKETT: We held three staff meetings.

SMITH: This is company spokesman Karl Plunkett.

PLUNKETT: Each person picked up a piece of cardboard, wrote on the card what their salary was, pinned it on the board in front of all of their colleagues, and said, my name is Karl, and this is how much I earn.

LISA POLLACK, HOST:

And just like that, all at once, everyone in the company knew exactly what their coworkers were making. If that sounds like an exercise with so much potential for conflict and drama that it could be the premise of a reality show, well, there is a reason for that.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

UNIDENTIFIED MAN #1: Tonight, one of Britain's top bosses is going to get his workers to reveal to each other what they're paid.

PLUNKETT: I could just...

SMITH: This is "Show Me The Money," a Channel 4 program about what happened at Pimlico Plumbers. And the idea was a pretty noble one, to see if bringing salaries out in the open can lead to fairer pay, can lead to better morale.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

GREG: My name is Greg, I'm a (unintelligible), and I earn 21K.

ADAM WELLS: My name's Adam Wells (ph), and I'm on 25 and a half thousand.

JOHN: John in the body shop, 40K.

POLLACK: Right away, there are problems. That guy John, he's being paid 10,000 pounds more than his friend Mark is for the same job.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

UNIDENTIFIED MAN #1: Now they know Mark earns less. Working together has become difficult.

JOHN: I'll feel like you got personal towards me yesterday when you mentioned that perhaps you can have a holiday this year.

SMITH: John, the one who makes more money, he thinks that Mark's trying to make him feel guilty for being able to afford a vacation.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

JOHN: You're the only one that's had a holiday, so I took that quite personal, if you know what I mean.

MARK: If you was 10 grand beyond me, I would think you'd start thinking about all them things as well.

JOHN: But I - it's not my fault.

POLLACK: The tension raises a question, a question perhaps best asked by a shouting man with a British accent.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

UNIDENTIFIED MAN #1: We're being open about pay. Make Pimlico Plumbers a better place to work.

UNIDENTIFIED WOMAN #1: They're winded. They're angry. They're saying, actually, this isn't really our responsibility.

UNIDENTIFIED MAN #1: Or will it blow up in the boss's face?

POLLACK: Hello, and welcome to PLANET MONEY. I'm Lisa Pollack.

SMITH: And I'm Robert Smith. Of course, a reality show is going to highlight all of the fear and all the anger that comes when people talk about how much they're worth. But what would happen if you made this reality show a reality? What would the world be like if everyone knew what everyone else earned?

UNIDENTIFIED WOMAN #2: We'd like to say a quick thank you to one of our sponsors, stamps.com. Stamps.com helps businesses avoid time-consuming trips to the post office. Use your own computer and printer to print official U.S. postage for any letter or package. Then the mailman picks it up, no more wasting time going to the post office or wasting money on expensive postage meters. Right now sign up for stamps.com, and use the promo code money for a special offer, a four-week trial plus postage and a digital scale. Go to stamps.com, click on the microphone, and type in money.

SMITH: OK, that was the TV show version of reality, but let's take a look at salaries in the real world where there aren't cameras around, where, let's just say, emotions aren't heightened. We will visit a company today trying to be open about money here in the United States.

POLLACK: But first, we want to talk about why it's so hard to make this change. Some workplaces already have salary transparency. If you work for the government, for a university, for the military, everyone knows what you make. But most private companies keep salaries in the dark.

SMITH: And one of the reasons is pretty obvious. If salaries are secret and only the boss knows what everyone makes, then the boss, the company, has all the negotiating power. But don't take my word for it. Here is an actual boss.

DANE ATKINSON: I have, in many occasion, paid the exact same skill set wildly different fees because I was able to negotiate better with one person than another.

POLLACK: Dane Atkinson is a tech entrepreneur. He started his first company at 17. He's run almost a dozen more since. He's tall, friendly and somehow able to sound completely cheerful while explaining the art of hiring workers for as little money as possible.

ATKINSON: You try to get the candidate to reveal what they want, so you ask them, what are you expecting, or what did you make in your last job? One person will say, I made 80 in my last job. One person will say, I made 50. Rarely - and I was guilty of this as well - well, we tell the 50 person, oh, that's insane. You should make 70 here, no problem. The 50 person, you're like, I think we really like you. We can probably get there. We can probably get up to your number.

POLLACK: We can probably get up to 50?

ATKINSON: Yes.

POLLACK: You've done that?

ATKINSON: Absolutely, and I think almost all of us do. It's so hard not to when your driving motivation is to build the company and keep your capital reserves. And if I went to the boards of all those companies and said, I got a great recruit under market, they will cheer. They'll be very happy.

SMITH: Dane and, for that matter, bosses everywhere get to take advantage of a classic problem in economics. It's known as asymmetric information, in some markets, certain people no more than other people. And to use the non-technical language, the person with less information gets screwed.

POLLACK: Let's say you're selling a car, and you have no idea what cars sell for. So if there were no Kelley Blue Book and no Internet and you went to the car dealer and said, hey, how much will you give me for this car, he is going to lowball you. He knows what your car is worth, and he has the advantage.

SMITH: Yeah, the boss man Dane says it is the exact same situation with salaries. You, the worker, are selling your labor, and you in a lot of cases have no idea what your labor is worth. You don't know what everyone else is getting at the company. The boss does. And so the boss and the company win.

POLLACK: As long as salaries stay secret.

SMITH: Sure, yeah.

POLLACK: Which, have you ever worked somewhere where salaries stay secret?

SMITH: True, yeah.

POLLACK: Somebody leaves a pay stub on the coffee machine, and the next thing you know, everybody who's screwed knows they're screwed.

SMITH: And then you got a Pimlico Plumber situation on your hands.

POLLACK: Exactly.

SMITH: Yeah, Dane saw it over and over again.

ATKINSON: There are definitely points that I - in the last few companies I've seen people cry and scream at each other, and they realize they've been under compensated, sometimes in salary, sometimes in equity, versus what they expected and what they think is fair across the team.

POLLACK: And did they yell at you?

ATKINSON: I tend to be fairly diplomatic, but they would yell. And it wasn't necessarily at me, but it was at the situation. It was at where they ended up being.

POLLACK: And they would...

ATKINSON: Literally people crying, tears dropping from their eyes, yelling and screaming, going out in the street and trying to help them go through it and diffuse it, and then going through very strong emotional arcs.

SMITH: After enough of these painful moments, Dane realized that for him, it wasn't worth it, that whatever money he saved upfront by underpaying workers, by screwing the little guy over, it was going to cost him later when he lost good people, when he lost the trust of his team.

POLLACK: So, Dane decided that at his next company, things would be different. Three years ago, he started a tech firm called SumAll. They help businesses track and use Internet data. And when he started this company, Dane turned his back on secrecy in a way that few CEOs ever do. He decided that at his company, everyone would know what everyone else makes.

POLLACK: Thank you.

A few weeks ago, I went to the SumAll office in New York to see the experiment for myself.

UNIDENTIFIED MAN #1: Andy...

POLLACK: Hi, I'm looking for Dane.

UNIDENTIFIED MAN #2: Dane, yeah.

POLLACK: Yeah.

Inside it's one of those open offices, no cubicles, just this big, airy main room and these rows of long tables with computers on them, an open kitchen stocked with sodas and snacks.

SMITH: Dane had an advantage here at his new company. The Pimlico Plumbers did not. His company was transparent from the day it started. So he had a clean slate. And at first, he was a pretty small company. There were just 10 people, people who'd worked together before. So they basically all got together and figured out a salary structure for everyone.

POLLACK: But then they started hiring, and things got trickier. How would job candidates react? Remember, this is a tech startup, a competitive field with a lot of ambitious go-getters. And there would be this moment in the job interview when Dane had to explain that he was trying some different. He'd say, here are the salary ranges, here's what everyone else in your department is making, and here is what we were going to pay you. And some people didn't like it.

ATKINSON: Distinctly remember hiring an experienced, seasoned employee who has negotiated through her career, and her response was, this is unfair because I can't actually negotiate. Like, you have because it's just - it is what it is. It's a car with an actual price versus, you know, talk to the dealer.

POLLACK: And if the person accepted the offer, then an email went out to everybody else on staff saying what this person was going to earn.

SMITH: Which is an amazing thing when you think about it, you're sitting at your desk, you're doing your job, an email pops up, one of those emails that says, hey, we hired someone new. His name is Joe. He went to SUNY Binghamton. We think he's great. And in the case of this company, it says, we think he is $75,000 worth of great. And of course, at that moment, like every employee is going to take a look at this guy's resume and say, is he worth it.

POLLACK: And some people found it a bit much.

ATKINSON: We had a number of people, and I can remember one distinctly saying, please stop mailing me these offers because I go home that night, and I think, is it really worth it for the company to hire this person. Where do I sit in position to this? And those aren't stresses that my particular job require me to experience.

POLLACK: So, Dane stopped the emails, and new people's pay went on the salary list with everyone else's.

SMITH: And the salary list is sort of the centerpiece of this experiment. There's a link to it on the company Wiki. Anyone can see it at any time. You can call it up and see where you stand, see who got a raise, see if that new hire Joe is moving up quicker in the company than you are.

POLLACK: And inevitably, as fair as the company tried to be, people would call the document and see things that just didn't feel right, like this guy.

CHRIS JADATZ: My name's Chris Jadatz. I am the senior brand designer, and I am the de facto head of the marketing team.

SMITH: De facto because earlier this year, Chris took over the duties of someone who had left the company. It was a lot more responsibility, and Chris, after he got the job, was wondering, wait a minute, how much did this job pay before I started doing it?

JADATZ: So I went to the Wiki, and I saw that the person who was vacating the position that I was about to be moving into was making about 95, I believe, and I was making 55.

POLLACK: And how did that make you feel?

JADATZ: It made me feel definitely underpaid, as if maybe I was being looked over maybe a little bit by the team. Of course, everybody is very busy, and there's a lot of things to deal with, but you definitely feel that for the work that you're doing, you wonder whether or not it's worth it.

POLLACK: And here is the strange thing that happens when salaries are public. When you see something that bothers you, you don't cry or yell or quit your job. You can talk about it.

SMITH: And not just talk in a little gossipy group in the kitchen with your coworkers, you can actually go to your boss. I mean, this is now public information, and say, hey, I was looking at the Wiki, and look what I discovered.

POLLACK: So, Chris took the information that Dane had provided, and he went to Dane. He pointed out the pay gap, and he argued that he should at least be bumped up to whatever the other person was making when they started at the company.

JADATZ: And he was incredibly comfortable that he was - said absolutely, we'll get you up there, no problem. And it was that easy.

POLLACK: How much do you make now?

JADATZ: I make 75 now.

POLLACK: Oh, so you got a $20,000 raise.

JADATZ: Yes, yes, I did.

SMITH: Dane, the boss, has meetings like this all the time - not necessarily meetings just to give big raises but meetings to talk about pay, talk about what people are worth. To Dane, this is one of the keys to making pay transparency work. If you're going to tell people what everyone makes, then you also have to tell them why. And that leads to a lot of, you know, frank conversations about what is expected to people. Sometimes the employee makes a good point, gets a raise like Chris did.

POLLACK: But not always. Sometimes the employee comes to Dane and says, I want to make what Joe is making. And Dane tells them, well, you don't take on as much responsibility as Joe does or, you're not as valuable to the company as Joe is or, in the hardest form of this conversation...

ATKINSON: I hate to say it, but you're actually not as good as your self ego says you are.

POLLACK: And you've said that.

ATKINSON: Certainly in more diplomatic frames 'cause everybody can become so much more than they are, but people have to take their path. So, yes, there are plenty of conversations where you're not there yet.

POLLACK: After I talked to Dane, I walked around the office at SumAll. It was three years into this new way of doing business. And I wanted to know what employees thought about it. I asked them over and over. How does this not bother you, having your salaries public? Doesn't it make you jealous? Don't you get distracted? Or to put the question another way...

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

DECLAN CURRY: Will being open about pay make Pimlico Plumbers a better place to work, or will it blow up in the boss's face?

MAHSSA MOSTAJABI: It was actually way less exciting than I wanted it to be.

POLLACK: That's Mahssa Mostajabi. She manages customer support.

MOSTAJABI: I mean, it's a very, like, plain, like, Google doc with just, like, numbers and names. And it was just very, like - just, like, oh, OK, like.

POLLACK: It was anti-climactic.

MOSTAJABI: Yeah, it was super - and I was just, like, OK, like, great, awesome.

POLLACK: No one I met at SumAll copped to being jealous or distracted. If they were, they told me, they knew they could just go ask the boss about it. And some of them said the fact that the salary document is public and they can look at it at any time actually makes them feel like they don't need to look at it at all.

UNIDENTIFIED MAN #1: I've looked at it a handful of times. It doesn't really come up that often.

POLLACK: Like, do you know what she makes?

UNIDENTIFIED MAN #1: I don't think I actively know off the top of my head.

POLLACK: So how often in the year you've worked here have you called up the wiki to see what everybody makes?

UNIDENTIFIED WOMAN #1: I actually haven't. And I think it's when I'm unsure...

POLLACK: You've never looked.

UNIDENTIFIED WOMAN #1: I haven't, no.

POLLACK: I talked to the CEO of another company that has pay transparency. He told me this reaction reminds him of the way Americans are when they hear about topless beaches in Europe. You know, before you go to one, you think it's just going to be the craziest thing in the world. How do they deal with that? And then you get there, and it's like, OK, nobody's flipping out because there are topless people here. It's just how things are.

SMITH: The way Dane sees it, one of the best things about transparency is that it takes out any temptation to do the kind of things that he terms as evil. So for instance, you cannot pay women less than men if everyone in the company can see exactly what you're doing.

ATKINSON: We couldn't hire a minority at half the price. It just wouldn't stand. We couldn't abuse somebody who really had no self-image and offered themselves at a lower value, right? We can't hire somebody at twice the value just because they'll help us close a venture deal. We have to act in a balanced and better fashion. We actually get to work and not play games all day long.

SMITH: As you can tell, Dane is a big evangelist of salary transparency. And he's talked to dozens of other companies. He talks to them. They ask questions. He says you really need to try this at your company, but very few people have tried it. And in fact, Dane says the people he has talked to, they haven't tried it either. And there's a really big reason for this, a big reason why it's hard to make salaries transparent at a company that hasn't done it from the start. And that's because before you can tell everyone at a company what everyone makes, you have to fix all of your problems. You have to make sure that people doing the same job are paid the same amount of money. Otherwise, you're going to have a mess.

POLLACK: You're going to have Pimlico Plumbers.

SMITH: Which, of course, we're going to tell you what happened there.

POLLACK: Yes, we're going back to Pimlico Plumbers as promised. When we last left them, they'd all just found out what everybody makes. And for some, it was shocking.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

UNIDENTIFIED WOMAN #2: Really shocking, actually - I wasn't expecting that at all. I honestly thought that everybody I worked with was on the same wage as me.

POLLACK: The people who were being underpaid, of course, they wanted more money.

SMITH: And the boss said, we don't have enough money for raises; the staff would have to find the money themselves.

POLLACK: So they all get together, and they come up with these ideas. In some places, they figure out cost savings, save money on supplies.

SMITH: And some of the higher paid workers, obviously feeling guilty on this television show, gave up small parts of their salaries.

POLLACK: And by the end of the show, the most egregious pay discrepancies are being evened out, including the one between Mark and John. You remember them from the garage.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

CURRY: Mark will get 9,000 which will take him up to 40.

It's a massive nine grand raise. So Mike's finally on the same wage as his workmates. There's one final hurdle.

Anyone unhappy?

For the new scheme to be accepted, the whole company needs to vote in favor of it.

We're going to vote now. The ones that are for it, put their arms up.

SMITH: Lisa, this is a very exciting moment.

POLLACK: You know, it's actually really emotional.

(SOUNDBITE OF TV SHOW, "SHOW ME THE MONEY")

CURRY: Now is that generally everyone here - there's no one against it? Well, I'll tell you what, honestly I'm absolutely amazed at that, unbelievable. So yes, it's done.

(APPLAUSE)

SMITH: So that is the classic reality show ending two years ago, but this is a real company. And so recently, we called them up and said, is that really how it went?

POLLACK: Yeah, and Karl Plunkett told us that it was painful, but it was worth it. They're glad they did it.

SMITH: But there was one thing that got left out of the TV program. During that final scene with the applause and the soaring music - during that scene, the head of their IT department actually quit because he didn't think he was making enough money. That did not make the TV show.

POLLACK: Too real.

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