Is Open-Book Management Right for Your Company?

There’s a leadership approach called open-book management that I’ve learned about in my work as a managing editor of a health trade publication. Some of the doctors I write about use this approach to manage their employees. As you might guess, it involves “opening” your financial performance results to employees, so they understand your long-range goals, and what you’re up against.

It makes sense to put the work into context, so employees don’t feel you’re being unreasonable when not granting raises or pushing them to design and deliver new products, to show them the reality of the numbers. On the other hand, could it be demoralizing, or frightening, to see the hard truth of the numbers? Many of us don’t even like weighing ourselves, so do we really want to know that the employer we’re relying on for our livelihood is struggling financially?

A survey I perused recently about Generation Z, which some say is poised to become the largest generation in our population, superseding even Millennials, shows that honesty pays off. Not only is honesty the right thing to do for many people; it’s what the youngest generation expects. According to a Generation Z survey conducted by Robert Half, “Gen Zers’ most valued characteristics in a boss are honesty and integrity, cited by 38 percent of respondents. Paul McDonald, senior executive director for Robert Half, advises Boomer and Gen X managers, in particular, to keep a close eye on turnover. If it’s high, there’s a good chance these professionals are calling foul when it comes to these core values. ‘Top-down management techniques that other generations might be accustomed to can strike Gen Z as inauthentic,’ McDonald says. ‘Gen Z professionals are questioners, and if they can’t find answers to their questions, or the company seems withholding when it comes to information, that sets off alarm bells.’”

If this survey is accurate, then it would be a good risk to take to be as open as possible with employees going forward. The health-care practices I’ve written about are open—up to a point. I haven’t heard of any of them sharing the income of the practice owners. Is sharing income of business owners and executives too much? If you have nothing to hide, maybe it’s not. Let’s say your business has a net profit that’s in the many billions of dollars, and your top executives make many millions of dollars. That would be appropriate, but it also would be appropriate for the rest of the company’s employees to expect a fair salary, wouldn’t it? If your top executive makes $50 million annually, or even $100 million annually, and you own, say, 11,000 stores globally, then what’s a fair salary for cashiers and other store associates? If you can make the case with your numbers, and business strategy, that your salary, with other benefits taken into consideration, is fair for all employees, then why not let employees know what top executives make?

Of course, many of us realize that companies often don’t pay employees, outside of top executives, a fair salary. Somehow most of these companies continue to thrive. In many cases, these companies are publicly traded, with the salaries of top executives an open “secret.” But not all incredibly profitable companies are publicly traded, and so they are free to keep any business information proprietary that they choose. In the long run, are you shooting yourself in the foot to keep salaries a secret? If there is such an inexplicable disparity between the salary at the top—in the many millions—and those at the bottom—not enough to be considered a living wage—isn’t there a problem employees already are picking up on? With a generation moving into the workforce that prizes honesty from executives even more greatly than Millennials, the ruse may not last much longer.

In addition to executive pay, do you think there is wisdom in making public among employees the salaries of all those who work for the company? In the famous Lilly Ledbetter court case, which ultimately led to the Lilly Ledbetter Fair Pay Act, Ledbetter’s male co-workers bragged to her about the overtime pay they received, but her employer, Goodyear Tire & Rubber Co., didn’t allow its employees to discuss their salaries. Ledbetter didn’t know she was being discriminated against in pay until she received an anonymous letter informing her of the salaries of her three male colleagues. If the company had not only allowed employees to openly discuss their pay, but made that information available for anyone at the company, the pay discrimination Ledbetter faced would not have happened.

Like the salary of top executives, companies should be able to easily explain why each employee is being paid the salary he or she is being paid. If two employees, who are at the same level at a company, and doing the same work, are paid differently, then there should be an easy explanation. For instance, you could say, “Well, Shirley has been at the company for five years longer, and has received increases in her salary in the form of regular cost-of-living adjustments, along with merit increases because of these achievements.” If you can’t easily—and objectively—explain why one employee earns more than another, then maybe there shouldn’t be any difference in the two employees’ pay. Like the pay of top executives at companies, in which entry-level employees don’t earn a living wage, isn’t only a matter of time before an honesty-loving generation loses its patience, and wants to know why they aren’t making the same money as their friends at the company.

With long-term strategy and budget maintenance at stake, you may save yourself a lot of trouble in the long run by being open—and honest—in sharing with employees how much money the company, top executives, and all employees make.

What do you think of open-book management? Is it a recipe for disaster? Or do you think it can save companies from many other problems?

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