The new age of employee compensation transparency is upon us

WARNING: If you’re here for commercial real estate tax news, this post has nothing to do with it. It does, however, have to do with a critical part of running a business, real estate industry or not: employee compensation.

Over the years I’ve heard executives lament their disdain for employees sharing compensation packages and salaries amongst colleagues. The complaints from higher-ups usually stem from a desire to control negotiations with new employees or mitigate ill will between colleagues about perceived pay inequity. Some executives believe it is simply uncouth to disclose one’s personal pay to someone else.

While there may be a practical need to keep some details of employee compensation private, that decision should be left to the employee. (And in fact, many workers are in favor of more pay transparency.) However, the purpose of this post is not to sling mud at certain corporate norms (even though some may deserve it!). Instead, it’s to draw a distinct line between how certain aspects of employee compensation are structured. Specifically discretionary bonuses. And more specifically the discretionary bonuses that are offered in a formal employee compensation package.

When I took my first job in professional services more than 20 years ago, a discretionary bonus was usually just that: discretionary. Period. No methodology and no straightforward calculus that if one were to hit a specific performance metric, one could expect to be bonused a corresponding amount. Other bonuses (e.g., commissions) did and still do exist that were tied to specific sales goals, but the ever-elusive discretionary bonus was always dangled in front of new hires as the golden carrot that would await you at the end of a “good or great” year.

Somehow, the company could never guarantee it but they always had a typical range of what you could earn if the company had a “good year.” Now, please don’t dismiss this post as cathartic vitriol from a disgruntled employee who never excelled enough to achieve those discretionary bonuses. While there were times I was unhappy at the amount of money I received as part of a discretionary bonus, I can’t recall ever going without one when it was part of my comp package.

Out of business school, as I rose from cubicle employee #27 to manager and had my first opportunity to offer someone a bonus, I had pure disdain for the corporate employee compensation rules and restrictions placed on leaders. These rules left my team feeling the same way I felt every time I received a discretionary bonus: Wondering how my supervisor came up with the number. Why this amount and not another amount? How do I make sense of the actual amount I just earned? Is this subjective? How much of this is based on qualitative vs. quantitative measurements? And is anyone else thinking the same thing I’m thinking right now and are they okay with it?

Today, one of my favorite jobs as a leader is rewarding team members for their hard work. Not just with private and public praise but with actual compensation. Yes, of course money isn’t everything, but just about everyone loves more of it. When we launched our company, we decided to be fully transparent when it came to the compensation we promise team members. We decided if there are discretionary bonuses they will NOT be offered as a formal part of the employee compensation package. Offering employees a bonus that can’t be measured and is deemed purely subjective while they are making one of the most important decisions of their life is disingenuous at best.

I believe that a healthy compensation culture means that employees know exactly what they will or could be paid when taking a job. Employers should always tell their employees clearly and OBJECTIVELY what is required to hit compensation-based performance metrics and then if they hit those goals, pay them what you promised. There should be no questions or confusion over how you are paid. Using a non-metric-based discretionary bonus as a tool to attract new employees needs to be relegated to the history books.

To that end, if you’re running a company, big or small, and you’re not offering EVERY employee in your organization some form of objective performance-based bonus at even the smallest pay scale, you are missing out on a critical opportunity to empower your teams to drive innovation and evangelize your products and services even when no one is looking. And when a discretionary bonus is warranted, which it certainly can be, it should be doled out on a case-by-case basis and always unexpected. Rewarding a team member for a big win or achieving something spectacular is always a good reason. Otherwise, simply tell someone what you’re going to pay them when they perform and then deliver.