13 Feb 2012 Back

Open the Books to Fairness and Fair Pay

VIEWPOINT: Open-Book Management has much to contribute to the fairness debate, and even to bridging the gap between excessive executive pay and average salaries that is causing the corporate world such bad press.

When Inc. magazine’s John Case first coined the expression Open-Book Management (OBM) in the early ‘90s its aim was improved profitability and productivity, by creating a workforce of entrepreneurs. Today the agenda has moved on as new themes such as corporate sustainability, employee satisfaction, engagement, retention, and fairness have emerged.

A new paper from UNC Kenan-Flagler reintroduces OBM in the light of this new corporate agenda, at a time when fair remuneration, a fair return for shareholders and fairness through transparency are headline news.

The debate peaked last month when President Obama talked of restoring “an economy where everyone gets a fair shot, everyone does their fair share and everyone plays by the same set of rules” in his State of the Union speech, and UK Prime Minister Cameron spoke of giving people a sense of “a fairer, better economy… where if you work hard and do the right thing you get rewarded.”

The original OBM mantra was ‘Unleash the Entrepreneur Inside Every Employee’. Today, by extending the focus to treating employees with trust and fairness, OBM can provide a practical way for the business world to try to meet these fairness aspirations in the real-world.

Jack Stack, who in his book The Great Game of Business developed the OBM approach said that “When you share the numbers and bring them alive, you turn them into tools people can use to help themselves as they go about their business every day.”  His initial aim was to promote the bottom-line but, as the UNC Kenan-Flagler paper puts it, OBM can “significantly contribute to achieving and maintaining corporate sustainability efforts by integrating social and environmental metrics into the traditional financial measures of business success… by empowering employees with knowledge of the critical numbers, enabling them to see where their innovative efforts can streamline operations, saving money and resulting in increased sustainability.”

One downside of OBM is ‘ratcheting’. Footballer Ashley Cole was famously reported to have said his club Arsenal were “taking the piss” when they offered to raise his pay to £50k a week. Married to a superstar he surely did not need more, but he knew that rival clubs were paying up to £100k a week. Access to information can lead to pay ratcheting, but there is also evidence that informed employees will show restraint, accepting reduced hours and pay freezes to help a struggling business. The recent revival of the US automotive industry is partly thanks to the forbearance of its employees.

While one might assume OBM principles would generate resentment toward highly compensated employees, evidence shows the opposite occurs. Employees in open-book organizations better understand and therefore accept compensation structures more willingly. Organizations that keep compensation plans secret and their books closed tend to generate more distrust and resentment among employees.

Another potential down side is to do with confidentiality. The books do not always tell a happy story and the spread of bad news can escalate a company’s problems. However this must surely be offset by the fact that hiding bad news, rather than bringing it into the open early, has so often been the source of corporate disasters. Furthermore according to the UNC Kenan-Flagler paper, there is no evidence to show that organizations following OBM practices experience more misuses of proprietary information compared to other organizations.

In its final part the UNC Kenan-Flagler paper suggests a series of practical ways that HR and talent management professionals can help propel an organization towards adopting OBM practices and achieving corporate sustainability goals.

Further Information

Read the full paper: Embracing Open-Book Management to Fuel Employee Engagement and Corporate Sustainability
By: Anne Claire Broughton, Senior Director, SJF Institute; and Jessica Thomas, Managing Director, Center for Sustainable Enterprise, UNC Kenan-Flagler Business School

View the UNC Kenan-Flagler profile on IEDP

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