Should You Let Employees Set Their Own Salary?

Joost Minnaar
Written by Joost Minnaar November 30, 2022

When this year started, your salary was probably worth more than it is now. Although you’re still making the same amount of money, it’s likely not going as far as it used to even a few months ago. With inflation being around 15%, everyone is currently raising their prices. So, why can’t you do the same?

The answer is simple: you don't set your own salary. Your boss does.

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Salary is taboo

Imagine you knock on your boss’s door to ask for a salary increase. What are the odds you actually get one? That you walk out of that office with a 15% raise? Keep in mind the company itself is also likely dealing with rising costs. Moreover, if your boss gives you such a raise, your colleagues will obviously want the same.

That is the main reason why salary management is shrouded in mystery at most companies. You probably may have heard it yourself from your boss: “I can offer you salary X, but you will have to be secret about it—otherwise, people get upset.”

That’s somewhat understandable on some levels. Still, the secrecy is the problem.

Salary transparency

A company full of people who feel underpaid has a problem. In a tight labor market, you run the risk of important people leaving the company. However, a disengaged, dissatisfied, and demotivated employee who remains at the company is perhaps even worse.

That frustration is usually due to a lack of transparency and knowledge. If you don’t know the considerations that go into determining your salary, if you don’t know what your colleagues earn, and if you don’t know the company’s financial state, you’re likely to feel undervalued.

I can now argue for radical transparency, but that is a painful process for many organizations. In most companies, a slew of agreements, privileges, and regulations concerning employees’ salaries have all taken shape over the years and become the status quo, so you probably don’t want to suddenly make it all public with the push of a button.

Still, is a company where the shit hits the fan as soon as you are honest and open about the company’s finances actually a healthy company? I do not think so.

Should You Let Employees Set Their Own Salary?
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Morning Star, Haier and Centigo

In recent years, numerous organizations have experimented with the opposite of opaque top-down salary determination and adopted a transparent system where employees determine their own wages.

Companies like American tomato processor Morning Star, the Chinese white-goods giant Haier, and the Swedish consultants of Centigo are just a few examples.

But be aware—this is not some sort of blank check situation. Instead, employees receive training in basic finance, learn how the company works, and thus better understand the overall value they add to the company.

Experimentation is not for everyone

As I said, I am not advocating for everyone to adopt this method tomorrow. A lot of things have be right within a company for that to work properly. And, as you might imagine, it has quite a few snags.

In addition, some basic conditions must be in place beforehand. Employees have to possess a high degree of responsibility with high levels of mutual trust. Transparency and engagement should also be commonplace. If so, you can then consider undertaking such a radical experiment.

And you know what? If you already have all those conditions in place, then you’ve already made enormous progress. And then you can decide who decides on the salaries.

In recent years, numerous organizations have experimented with the opposite of opaque top-down salary determination and adopted a transparent system where employees determine their own wages.
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Written by Joost Minnaar
Joost Minnaar
Co-founder Corporate Rebels. My daily focus is on research, writing, and anything else related to making work more fun.
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