This article, well worth a read, mentions how startups like Buffer and SumAll avoid salary negotiations entirely by having a culture of open salaries:

"The negotiating process is very alien to us at Buffer—because there is no negotiating," CEO Joel Gascoigne previously told Quartz. "We have a really high focus on cultural fit to the point that if they didn’t know about the formula before they applied, they probably wouldn’t be a good fit."

There is something slightly misleading in this. In a transparent culture, it’s true that there are no traditional salary negotiations, by which I mean the closed-doors, one-on-one, “I deserve to earn more and I’ve got better offers, so give me a raise” types of conversations, because it is simply impossible to act on them - secret pay packets are just not possible. If someone gets a pay raise, there needs to be a viable justification for that.

However, our experience is that there are, and in fact must be salary negotiations, but they happen in a group, in the open.

Much like with hierarchy, however, it is misleading to say that the “new model” of building companies has no salary negotiations - they just adopt a radically different, much more open and transparent and fair format. If they never happen at all, though, you’ll have a lot of problems with staff retention.

 

Paul Arnold of AppDirect on creating an organisational structure that people can work within:

When you’re growing beyond 10 or 20 people, there’s a truth you’re probably reluctant to accept: You need organizational structure. New faces keep showing up wondering where they fit in. And people need to be empowered to lead. At AppDirect, we had to reinvent our approach several times before it worked.

Paul goes on to provide a very helpful and thorough overview of what they did at his company to put in an org chart (and then review it many times).

It’s worth pointing out (as you will know if you read this blog) that this is not the only approach to organisation. For example, companies like Valve and Github have an organisational structure based on open allocation. But to think that this means they have “no organisational structure” is as mistaken as declaring that “agile” means “no project management”.

Open allocation means the org chart can change, shift, reassemble, without a formal “re-org” like the ones that AppDirect went through multiple times. If anything, this requires more thought about structure than the regular way. After all, hierarchy is essential and inevitable, and open allocation (or holacracy, or other systems) don’t change that.

 

Bob Sutton writing on LinkedIn (a source I rarely quote):

Organizations that are celebrated for their lack of hierarchy may downplay and reduce status differences, but they always have some people with greater formal and informal power than others — and associated pecking orders. And eliminating titles such as “manager” or “supervisor” doesn’t make the hierarchy disappear. For example, there has been a lot of talk lately about Zappos’ ongoing reorganization into something they call a “holacracy.” Some headlines suggest that the company is getting rid of bosses – that isn’t quite right. While more power is being pushed down the hierarchy, it persists under the new structure. More responsibility is being placed as people are moved into “circles” (which sound much like self-managing teams). Yet even though they have stopped using the word “manager” for many roles, there are still be people who perform what sound like middle management roles to me: They are responsible for staffing teams and dealing with employee performance issues. And, while Zappos is getting rid of a lot of titles, note that Tony Hsieh is still called the CEO.

Great point. I think one of the misunderstandings of “flat” structures is the idea that there is no hierarchy. As Bob points out, there is always hierarchy, whether formal or informal.

A friend of mine who worked at a company with no hierarchy (and open allocation) commented that the problem with “no hierarchy allowed at all”, is that a hierarchy still forms, around who’s loudest and most pushy about their ideas. The huge problem with that is that this hierarchy is static - because it’s not even official, and it’s based around intrinsic properties of its people, it can’t be changed.

The problem with hierarchy is not with the mere existence of hierarchy, but with that hierarchy remaining static. A good organisational structure recognises that there is always a hierarchy, formal or informal, but more importantly recognises that this hierarchy will have to change at some point, and that it should never become a barrier to company adaptation to new external circumstances.

At GrantTree, we have only two levels of formal hierarchy: directors and everyone else. However, there are plenty of informal hierarchies that form and break down depending on the work that’s being done, and as the company expands its product offerings, we are geared up towards letting the informal hierarchies change and reshape around new commercial realities.

Why do we have directors at all? Because by default purely democratic organisations tend to resist change. Directors are there to be agents of change, explicitly tasked with making positive change happen within the company before it’s a burning need - not because they’re there to give orders to their subordinates (a word we would never use within GrantTree).

 

Tom Tunguz talks about the importance of both creating process to create order out of chaos, and then also continually improving those processes once they’re in place:

Once in place, these processes can’t remain static. Processes must stay relevant and productive through persistent improvement. This means using software to instrument processes, charging team leaders with the responsibilities to create new ways of doing things and pushing the company towards rapid improvement.

This is a good point, but bear in mind that command and control (“here, team leader, you’re in charge of getting everyone to follow this new process”) is not the only way - and is in fact a way that’s proven to create enormous amounts of inertia as the company grows.

Once upon a time, the way companies evolved their processes was via a “thaw - change - refreeze” model where a need for change was defined and then led to a clearly delineated transition phase. In today’s world, though, things change faster, and companies have to adapt faster. Nowadays, to be successful in the long run, a company needs to learn to adapt and change continually, and never freeze.

You might think this is only a problem for large companies, but actually it’s just as much of a problem for smaller ones. Change-averse culture can set in even at relatively small sizes of 10 or so, if no one is taking care to keep things moving in the right direction. Large companies can afford to waste billions on change programmes (sort of), but small companies are often against the ropes. Our main advantage as smaller companies is often adaptability - but just being a small company doesn’t mean you’ve remained adaptable.

 

Steve Blank:

Short answer — almost all the Unicorns pivoted. The authors of the article didn’t understand what a pivot was.

(…)

What was lacking in the article was a clear definition of a pivot. A pivot is not just changing the product. A pivot can change any of nine different things in your business model. A pivot may mean you changed your customer segment, your channel, revenue model/pricing, resources, activities, costs, partners, customer acquisition — lots of other things than just the product.

The 9 different things, in this case, are the 9 boxes in the business model canvas.

However, I’d push this a bit further. Once upon a time, source code control with solid tools like Subversion meant branching was difficult and required agreement between multiple people, etc. Then Git and Mercurial came along, and now branching is free, something that happens constantly, smoothly, without overhead. Best development practice has evolved accordingly to encourage frequent branching and merging.

Once upon a time, making changes to the business model was poorly understood, something you did by gut feeling, which had a high risk overhead because there were no measurements to prove that a change was beneficial. With Lean Startup and the Business Model Canvas, or other, proper mapping of your assumptions (such as Hypothesis Driven Development, making changes is something that can happen smoothly, quickly, and on a daily basis (at least pre-market-fit). Until you get to product-market fit, your main advantage is your speed of adaptation.

Like continuous deployment, which involves deploying the codebase to production many times a day, each time a new change is made (and tested), continuous pivoting means making tweaks to (often small aspects of) the business model several times a day. Most of those “pivots” are in fact micro-pivots, but in aggregate they can add up to very significant changes. This makes obvious sense from a pre-fit perspective, but what about post-fit?

I would suggest there is no fundamental difference between a pre-fit business model tweak and a post-fit one. And as the environment that the company evolves, the company must adapt - through continually pivoting. It might be called something else, but that’s what it is.

These changes necessarily become slower as the company grows and develops more cultural inertia, and as the risk of uncontrolled changes grows, but when they stop, or become too slow to adapt to a changing market, the company stops growing and starts dying.

Which leads to another interesting insight: once your startup grows, if you want it to live on for a longer time, one of your primary concerns as a founder must be to build a human organisation that has the nimbleness necessary to keep pivoting, quickly, forever.

 

Yesterday, an article by Joel Gascoigne of Buffer set Hacker News alight with discussion. Arguments against transparent salaries abounded. People felt it could only lead to harm, and pointed to numerous hypothetical or even very tangible scenarios where having open salaries would cause serious problems. Some of the arguments opposed public disclosure, but most seemed to oppose any disclosure whatsoever.

Joel’s article was a great spark to light the powder keg, but it did not properly answer an important question: why?

GrantTree has been running with full (internal) transparency of salaries since day one, since we hired the first person. This happened first because I felt it made intuitive sense, but over time, I’ve had the chance to notice many reasons why this makes sense. Here’s what I believe is a fairly strong set of arguments supporting open salaries. I will not try to support public, external disclosure of salaries because I have no direct experience of that, but I have pretty well-formed opinions on the benefits of internally transparent salaries by now.

Transparency

Transparency is almost a buzzword by now. For startups, it seems like one of those key things that you have to do to be part of the crowd, a universally “good” value that everyone should adopt to some extent.

The killer is in the “to some extent” part, though. Being a little bit transparent is easy. Communicate more, be a bit more open, and there you go. Instant transparency in a friendly package that has almost no effect on your company culture.

But having transparency as a core company value (as we do) does not mean simply being a little bit more communicative with your staff about various things happening in the company. That’s not transparency, it’s just common sense. In a commercial environment where most work is knowledge work, where things change rapidly, keeping your staff informed is step one to be able to compete.

Real transparency takes a lot more effort, and it also has a much higher payback, that becomes evident as the company grows and matures and truly adopts transparency in its working practices.

Real transparency means deliberately and forcefully hunting down secrets and opening them. It means constantly asking yourself the question “am I doing this in secret? If so, why? How soon can I open it? Why not right now?” Whenever a new “thing” comes up, by default it will be discussed by only a few people and will be secret - that is a natural tendency for humans. A real commitment to transparency requires fighting that tendency all the time.

This needs to be done not just for things that don’t matter, but for everything - including, especially, salaries. Once you let secrets accumulate in one part of the business, they have an inexorable tendency to grow, accrue more parts, take over a larger part of the company’s mind-share. If salaries are secret, then how about the pay scale? If the pay scale is secret, then surely some of the factors that drive the pay scale might need to be confidential too, otherwise everyone can guess the pay scale. And so on…

Conversely, once you commit to the path of real transparency, you soon find that you can’t draw a line somewhere and just stop there. It feels almost insulting to do so - insulting to the intelligence of the people you work with, to imply to them that you can be transparent about all these things they need to understand to guess the things you’re not transparent about, but you’re not going to go any further.

The payback for going down this path, though, is enormous.

Trust vs control

Trust and transparency are intimately linked.

Most companies’ cultures are based on control rather than trust, because most people are scared of losing the illusion control. They want to feel in charge, like they have the power to command things to behave in a certain way. That power, that control, is an illusion, but by default, people cling to it like a loincloth covering their shame: the reality which is that they have no real power, just temporary and arbitrary authority.

Transparency removes that loincloth, in the business context. We’re all naked (in a business context, of course) and that’s ok, because we have nothing to be ashamed of. Importantly, it removes the illusion of control not just from employees, but also from the company’s management.

Full transparency means that everyone has the information required to question management’s decisions. It means all decisions are up for scrutiny. It means no one can just order another about without justification.

One of the most basic tricks for establishing a power imbalance between two people is for one of them to claim to know something that he can’t disclose to the other one. Transparency rips those kind of tricks away, and greatly evens out the power imbalance.

People can still have influence, of course, but that influence is earned through visible actions, not through access to secret information.

It is difficult to overstate the effect this has on company culture. A real commitment to complete transparency gets rid of a huge amount of bullshit in the company culture.

Mature discussions

People working for a company are not children, they are adults. And yet, with the typical levels of secrecy present in most companies, they are treated as children. “No, we can’t tell you about this thing, it’s not company policy to talk about this stuff.” “The contract says we’re not allowed to talk about salaries with each other”.

These kinds of behaviours treat people as children, instead of the self-aware, noble, mature individuals that they are. Keeping secrets is a way to push people down. Being transparent is a way to elevate them.

There is a lot to be said for the idea that people tend to behave in the way that they are expected to behave. If you treat them as children, they will behave as children. Most companies bemoan the fact that their organisational culture behaves as some kind of mass of children that do not take responsibility for what’s happening to the business as a whole, and yet they cut off those people from the information they need to do so and do not treat them as adults.

Full transparency is part of a number of company behaviours that change that. It’s a factor that communicates to people: we trust you to be responsible adults.

And, strangely enough, people react to that by behaving like adults.

What if this still sounds weird and alien

For some people, this probably still sounds like a weird and bizarre take on how to run a company. Others are excited by this and either recognise trends they’ve seen themselves or things that are happening in their own working environment.

If you’re in the first category, I encourage you to consider whether full transparency is scary simply because it’s unfamiliar. If that’s not the case, perhaps the reason for your dislike is even more simple: full transparency means giving up control in exchange for trust. It takes a lot more self-confidence in your ability to manage people than a secrets-based, command and control culture. That is genuinely scary, but I strongly encourage you to take the leap and see how you can function without command and control. You’ll be a better and more effective person for it.

If you’re in the second category, you may still be scared of going all the way. There are precious few examples of other companies doing this, so it certainly looks like a risky path. If you’re in charge, a founder of the company, I’ll merely remind you that no one ever builds something exceptional by doing it just like everyone else. Embrace the risk, plunge headlong into it, and you’ll be pleasantly surprised by the results. If you’re an employee, you can be more transparent and trust-based in any environment - even a secretive, control-based company. You may not be able to go all the way, but every little bit helps you and the people around you. Of course, I am happy to have a chat about this with anyone who wants to approach me. My contact details are easy to find.

Are there any downsides, though?

Of course there are, and for a good idea of potential downsides, check the Hacker News thread in question. However, my point is there are overwhelming upsides to committing to full transparency that outweigh the downsides by such a large factor that it becomes a no-brainer.

In summary

  • Full transparency is different from paying lip service to transparency
  • Full transparency requires a constant commitment to hunt down secrets and make the non-secret
  • Full transparency is hard work but the payoff in terms of trust and maturity is enormous
  • Full transparency does mean giving up some control, which is why most people are so scared of it
  • The net transfer of power is from the management to everyone else, so the only people who should be genuinely scared are petty managers whose power depends on holding secrets
  • There are potential downsides to full transparency, but the upsides described above outweigh those downsides massively
 
 

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