Saturday, June 09, 2007

The Secret Shame of Corporate Salaries

A funny little debate going in a few corners of the blogosphere over this op-ed piece in the New York Times by Susan Reed in which she says that businesses should be required to publicly post their employees' salaries. It's a response, in part, to last week's Supreme Court ruling, which said that workers can't sue for discriminatory pay practices unless they can gather the evidence faster than 180 days after the discrimination begins . . . something that is rather hard to do when salaries are a closely-guarded secret.

Anyway, Andrew Sullivan linked (without comment) to this libertarian blog (A Stitch in Haste) whose author waxed indignant over the horrendous invasion of privacy that such a requirement would create. The resulting debate has been, as I say, a bit funny, because the commenters on A Stitch in Haste--who one might assume would tend to be fellow libertarians who would cheer on the blogger--actually do a good job of raising most of the crucial counter-arguments. For example, this:
Oh, I'm sorry. I thought we had a free employment market.

How are free markets supposed to work without transparency? Faith-based markets, I guess. If you sold widgets in the market, you'd be able to pop over to the stall next door and see how much he was charging for his. That would help you set a competitive price and expense-reduction goals.

Oh, but apply that same reasoning to the people who are selling their labor, and it's unconstitutional! Small wonder most people hear "free market" and think "the little guy gets screwed again."
And this:
It's very simple: [if] you're paying a person what they deserve (within the margin of error that life demands), there's no reason to keep it a secret. If my boss is worth twice as much as me to the company, OF COURSE she should get paid twice as much. No one should ever have a reason to complain about appropriate pay, if it really is justified. The problem with paying CEOs 9 and 10 figures isn't that those are large sums of money, but that the people earning them probably aren't worth even 10% of that in many cases.
And this:
The lack of transparency is, as a practical matter, a guarantee of privilege for the 'old boy club', however that may be constituted at a given employer. Those selected will be in the know, and will know how to negotiate effectively for fair pay, those excluded from the informal access to information will be at a disadvantage. A thorough system of discrimination without leaving a trace--nicely done, counselor.

I defy any economist to come up with a rationale for why this is efficient or otherwise beneficial to anyone but insiders. I defy any lawyer to explain how some nebulous right to privacy should trump basic fairness and equity.
The truth is that there is zero chance of a proposal like Reed's getting passed into law any time soon. That doesn't make it a bad idea. Actually, Robert Townsend, one-time CEO of Avis, made the definitive comment about this whole topic almost forty years ago in his classic book Up the Organization (which by coincidence has just been republished in a new "commemorative edition" by my friend Neil Maillet at Jossey-Bass). Here's the advice Townsend offered business executives about salaries:
Secrecy is totally bad. It defeats the crusade for justice, which doesn't flourish in the dark.

Did you ever ask yourself why there's a private payroll? Or why all wages and salaries are posted on the bulletin board? According to the lore of the free-enterprise system money is really a scorecard. So why aren't the scores posted?*

*I'm not suggesting that you should post salaries. For one thing, it would over-emphasize the importance of money. But you shouldn't tolerate a situation in which you're ashamed to post them. Like you are.
Wickedly true in 1970, still true today.

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