How to become a transparent business?

Links to articles about transparency in business can be found at the end of the article.

What is the connection between sales and my salary?

A company named Nave Yam gave its employees a quarterly bonus. The bonuses were granted to employees who met their personal targets, which were determined according to an agreed scale. The employees were used to receiving the quarterly bonus and eagerly anticipated it at the end of each quarter. Department managers, who are closely connected to their employees, knew of their employees’ anticipation and were worried that some had not met their personal targets and therefore would be denied the bonus. Consequently, the reports regarding employees’ performance were inaccurate and managers turned a blind eye.

Rewarding employees for meeting personal targets is not a good system. It challenges the staff to decide whether to report truthfully or give up on their bonuses.

I wrote about this issue here.

I discussed the problem with Ms. Hen, CEO of Nave Yam. Since it was obviously not possible to stop the bonus system that had been going on for many years in one day, I suggest replacing it with a new system in which the bonuses would be awarded when the company met its sales targets.

This is a better way to award bonuses because:

It unites all the company’s employees towards a single target which is also one of the main targets of the business, and when it comes to sales, false reporting is not possible.

Awarding bonuses according to sales targets requires exposing the employees to the company’s sales data. However, Ms. Hen was worried that the employees may find the expositor to sales figures confusing as they had never been exposed to it before. She did not trust the employees to know the difference between gross income and revenues, and therefore, she thought, they might think that if the company’s turnover is high, they deserve higher pay. “Some of the employees”, she said, “have been working for the company for over ten years with no information about sales figures or other business issues”.

What do employees think when matters are not transparent?

Ms. Hen assumed that when the employees discovered the true sales data, they would ask for a pay rise and industrial unrest would start. However, it is important to remember that nothing works in a vacuum and employees, like all other people, use assumptions and estimations to complete the missing information. When they receive the true information, they compare it to their estimations.

Furthermore, are public companies publishing annual information regarding their sales volume, revenues, and margin under constant pressure to increase employees’ salaries?

Ms. Hen’s worries about letting the employees know the true sales data is common to many CEOs especially those who manage small and family run businesses. The smaller the business, the higher the managers’ objection. The fear is usually the same: “If we let our employees know how much money we earn, they will ask for higher salaries.”

However, the main reasons employees demand a pay increase is because another employee is paid more, not because they are exposed to sales volumes. Employees look at it as a question of fairness. If two people equally contribute to the firm, why is one paid more than the other?

The advantages of transparency in business

Jack Welch wrote in his book “Winning” that managers create trust by being straight and honest […] There is no doubt that when managers conceal information from the employees, they gain power but they do not gain trust […] Trust can be earned when managers are transparent, honest and keep their promises. It is that simple, Welch adds.

In my book Management and Leadership I wrote that transparency adds strength to the company. Concealing information from employees creates a rift between employees and company’s goals and negatively affects the company’s ability to generate profit.

In that book I dedicated a full chapter to “The power of transparency”.

The recommended method

The best way to engage employees in the company’s goals is by including them in problem solving sessions, making them equal participants in improvement teams, and sharing information at meetings that aim to find ways to achieve the company’s goals.

Involving employees in the thinking processes, making them equal members of improvement teams, and valuing their input will familiarize the employees with the company’s goals. This will encourage them to contribute their knowledge and increase their motivation. Employees are happy to contribute to the company’s success and commit themselves to the company’s goals when they are valued, their opinions matter, and they are appreciated.

With this in mind, we can be sure that when presented as part of the complex picture of the company goals, information regarding sales volume will be positively received.

An example

Jackob was employed at a reputable firm as production manager. His position required a partial expositor to some company’s sales and costs data. Since he had never been asked to be part of a trouble shooting or process developing teams, he was not aware of the company’s difficulties in maintaining sales targets over time. He did not know the true level of the company’s success in the market. However, from his narrow point of view: achieving the targets under his own responsibilities, he thought he had a critical contribution to the company’s success and therefore deserved better pay. He asked for a pay rise. Jackob did not know the full picture, he did not know that the company was in fact struggling to overcome many challenges to achieve its goals.

Summary and recommendations

Moving from a company that hides data from its employees to a transparent business and meeting the company’s sales targets requires connecting the employees to the sales targets. Employees must be equal participants in the planning and troubleshooting teams. They must help to find solutions to issues that the company faces every day.

Transparency is always mutual. The more transparent management is, the more honest the employees are in their reports.

Transparency creates trust and trust is an important strength in employer-employee relations.

Employees who trust their managers are more motivated to succeed, they retain their jobs for longer periods of time and contribute to the company’s success.

The effect of transparency on requests for a pay increase is negligible in comparison with employees’ feelings of unfairness i.e., “why does my colleague earn more than me if his contribution is no bigger than mine”

A strong and profitable company makes its employees proud. A losing company causes instability and fear of cutbacks and terminations.

Inviting employees to be part of thought processes, future planning and facing challenges ahead, connects them to the company goals and increases their motivation to succeed.

Compared to other objectives, such as maintaining high quality, efficiency or on time delivery targets, success in meeting sales targets is always praised.

A few years ago, I worked with a company that was experiencing major difficulties.

Increasing sales was one of the most important targets to recover. Data regarding incoming orders, actual sales volume and daily status vs plan were published amongst the employees every day. All staff members strived to increase sales. Everyone contributed their maximum effort, each in their own department. The company’s success was dramatic.