Open Salaries: Not for China

I recently discussed the article Why Secret Salaries Are a Baaaaaad Idea with my Chinese friend Mike. It’s an interesting read. The main points the article makes for why open salaries are a good idea:

  1. Salaries will become more fair. The system gets a chance to adjust itself.
  2. It will be easier to retain the best employees because they’re more likely to feel they’re getting a fair salary.
  3. The pressure is on the people with the high salaries to earn their keep. Everybody has to pull their weight – the higher the salary, the larger the weight.

Mike is an accounts manager for a Chinese company in Shanghai, and he has business experience in several companies. Unsurprisingly, he was convinced such an idea could never work in China. The main ideas we discussed:

  • The open salary system is based on an overall assumption that the boss is devoted to the idea of a fair workplace. In Mike’s words, “no Chinese boss wants to be fair.” The average Chinese boss exploits unfairness to the benefit of the company. The example he gave is that for the exact same job, a Shanghainese employee might be paid 5,000 RMB per month, whereas an employee from Gansu would only get 1,000. That’s just the way it is.
  • Many Chinese companies keep two sets of books in order to pay less taxes. If the company were to make public the fake books, it’s a meaningless action. But you obviously can’t make the real books public.
  • Mike’s conclusion: “It’s a nice idea in theory, but it would never work in reality. It’s like Communism!

25 Comments to “Open Salaries: Not for China

  1. zhwj says:

    I’ve been under the impression that salaries are actually less secret in China than they are in the States – I’ve been several places where payslips are printed altogether on two pages; one is cut into strips and handed out to the employees, and signatures are collected on the other, so anyone can see what everyone around them makes. At least the feeling I get about secret salaries it that they allow for a bit more maneuverability about incentives – deals can be sweetened and so forth, while in China everything seems to be a bit more bureaucratically regimented without that bit of flexibility.

    Whether or not the companies actually pay taxes on the numbers that circulate is another question, and overtime is definitely a promised perk that regularly fails to materialize. If open salary scales are truly what everyone has been waiting for in the US and elsewhere in the West, implementation in China should probably follow a more comprehensive benefit structure (and there’s enough bickering over that in the States, too – my coworker’s kids got braces, so basically he just got a several-thousand dollar bonus that I can’t take advantage of because I don’t have children). I guess I agree with Mike’s conclusion….

  2. Mike says:

    A few companies will do it and they will be successful and get and keep some really good people.

  3. Jeff says:

    I don’t get this – I dunnow about a secret set of books, but from my experience in IT, in the US salaries are a secret and just asking about them is taboo, in China the information gets passed around almost casually, and not only that but people ask about it like they’re asking for the weather.

  4. John says:

    Jeff,

    How employees act inside a company is totally different from how taxi drivers and other people on the street act. Even though strangers will regularly ask how much you make, in the Chinese companies I’ve worked in, it’s not discussed at all except in private.

    Of course, as ZHWJ mentioned, sometimes the information does get around the office in other ways, but maybe not the whole story. For example, I once worked in a fairly successful Shanghai company, and a (rather naive) employee saw the salary of the CEO on a payslip. So she confidently told me that she knew the CEO was only making 5,000 RMB per month. At the time, I was making more than twice that, so I felt pretty sure the CEO was making quite a bit more. My point here is that there are different levels of secrecy.

  5. Da Xiangchang says:

    I’m not sure if I understand the concept of “open salaries.” I mean, are American salaries “open”? To whom? To the government (taxes) or to other private individuals? Cuz I have no idea how much my friends are making stateside. In that regard, American salaries are just as closed as any other country’s. Only if you run for office do you need to open up your finances to the public. Now, if you’re saying Chinese salaries are also “closed” to the government, well, that’s an entire other matter. I can’t imagine Chinese salaries being closed to the government so any “closed salary” would therefore be an illegal salary, which is part of Chinese corruption. So the question is: Is China corrupt? Duh:

    http://www.infoplease.com/ipa/A0781359.html

  6. Mark says:

    John, was it a public company where this $5000 RMB/month CEO worked? If so, you could at least get some idea by looking at their quarterly filings.

  7. Shaun says:

    I found that if a company uses salary bands it’s not taboo to talk about how much you make. Without salary banding people are very private about what they make. I was quite surprised when I moved into an IT management position and found that one of my subordinates was making more than me. My manager quickly adjusted my salary (+11%), but it was still a shock.

    Now that I have a US state government job its very easy to know what somebody makes. Just find out what (salary) grade they are and how long they’ve been at that grade and you’ll know how much they make. The salaries and raises are structured.The only thing left private is how much time off a person has collected over their years and how much overtime they worked.

  8. Wilson says:

    I’ve come to dislike liberalism and those far left – they tend to think their way is better and make others change to fit their needs. Basically, trying to change things such as a “open salaries” in Chinese culture is akin to trying to change a government and way of life in Iraq.

  9. Tian says:

    Websites like http://www.payscale.com could give you an approximation of how much you should make. I don’t know if there is an equivalent in China.

  10. Jeff says:

    Not just taxi drivers – In Shanghai where I work, everyone knows how much co-workers make, how much people spend on their housing, how much people’s vacations cost, etc. The information gets passed around like a joint. In the US I wouldn’t feel comfortable asking my family or best friends those sorts of questions.

  11. John says:

    Da Xiangchang,

    Hmmm… why do I get the feeling you didn’t read the article?

  12. John says:

    Mark,

    Apparently the company was public, but somehow I’m less optimistic about getting useful information from their quarterly filings than you are…

  13. John says:

    Wilson,

    No one’s trying to change anything; we were just discussing a new idea. Liberalism may not float your boat, but if you’re against even discussing a new idea, that’s a little scary.

  14. Wilson, to each their own about the merits of ‘liberalism’, but your analogy makes no sense whatsoever. The whole Iraq thing is hardly a liberal undertaking; it’s the furthest thing from it, in fact.

    Shaun’s right; the Feds have a classic open salary system in place. It’s even online. Here’s what diplomats bring home.

  15. trevelyan says:

    Wilson,

    Just out of curiosity, why the reflexive association of “open salaries” with liberalism? If anyone, I’d expect to hear this sort of thing from a libertarian, since the economic rationale for the idea seems to be that perfect information will create a more efficient, fair and competitive labour market.

  16. Da Xiangchang says:

    “The whole Iraq thing is hardly a liberal undertaking; it’s the furthest thing from it, in fact.” Is it though? Obviously, the Bush administration is not liberal, but a lot of stuff it does IS traditionally liberal like, for example, the HUGE expansion of the federal government. I’d think spreading democracy and nation-building as ideas are more liberal than conservative–like, say, Wilson’s (the President, not Mr. Tai) 14 points and all that. I’d think conservatism by nature is generally more isolationist and cautious than traditional liberalism, which I consider more idealistic and utopian. So you have a lot of conservatives now saying Bush is perverting “real” conservatism, which as always with the Republican party, is the conservatism of their god Ronald Reagan. That’s how I see it–and I’m neither liberal nor conservative (how can anybody believe the ideas of only one idealogy is beyond me!).

  17. “Obviously, the Bush administration is not liberal, but a lot of stuff it does IS traditionally liberal like, for example, the HUGE expansion of the federal government.”

    that’s basically a canard. The most aggressive expansion of federal government and most massive deficits in US history have occured under GOP-led so-called ‘small government’ administrations, most notably Reagan, George Bush, and most of all, GW Bush.

    I don’t think that the idea of spreading democracy or nation-building is a liberal/conservative dichotomy. These have been traditional US goals no matter what one’s ideological stripe may be, at least post WWII. The more interesting debate is which side has proven more successful and incurred greater global goodwill.

  18. kaestner says:

    It’s like Communism… True, true.

  19. Da Xiangchang says:

    Prince Roy,

    Well, “expansion of the federsal government” and the “most massive deficits” aren’t necessarily the same thing. You have massive deficits when you spend more than you tax, but it doesn’t mean if you have a big government, you’re gonna have massive deficits cuz you can always tax your way out of it. So . . . I would think the most massive deficits are under Reagan and George W, but I’d bet the greatest expansion of the federal government were under F.D.R. and Lyndon Johnson and George W.

    “The more interesting debate is which side has proven more successful and incurred greater global goodwill.” I’d think this is an impossible debate. I mean, if you’re liberal, you can trash George W for the Iraq war, but you can equally trash liberals for Vietnam. And if someone counters that with Republican atrocity (saying, bombing Cambodia), you can always counter with another Democrat one (Bay of Pigs). You’ll be going in circles then . . .

    And “global goodwill” is rather irrelevant as a measurement IMHO since I believe 95% of global anti-Americanism is cuz of the non-American world’s insecurity and jealousy, and that no matter what America does, people will be pissed off at it. But I’m repeating myself. . . and off-topic too! SO what about those open salaries . . . ;)

  20. Wilson says:

    John, I’m open to discussion, but I am still scary.

    On trevelyan’s “why the reflexive association of “open salaries” with liberalism?” – I don’t know what that question means! However, when you say “efficient,” I definitely think tooling with change affects efficiency, and not in a good way. I have so many case-in-points as of late that could justify.

    Da Xiangchang, a liberal conservative? Best of both worlds, perhaps?

    kaestner: …watching the game, having a Bud…

  21. Lantian says:

    So how much does everyone make at Chinesepod? ;p

  22. Lantian says:

    Here’s the thing. People are naturally tricky, even believe it or not both Chinese and Americans. I love the CEOs who take a $1/year salary. Just don’t mention:

    1. The company extended 0 interest loan on the vaca home in Colorado.
    2. The deferred post-retirement tax advantaged salary payout
    3. The under-reporting threshold block sells of stock options
    4. The supplemental executive medical insurance
    5. The company leased car, apt, laptop, and golf membership.
    6. The dining and entertainment expense account and corporate card

    7. The company car, driver, and dry-cleaning service

    8. The education, relocation and new business 0 interest loans
    9. The leased home furnishings, cable and cell-phone accounts
    10. Lastly, the cash payments for ‘consulting services’ and guaranteed buyout payment in case of separation.

    Yah, that’s why I’m never in the office or ever seem to be busy, heck I make less than you do!

  23. Ryan says:

    In the groups of people that I have managed, the largest discrepencies in salaries were typically connected with the job title of the individual. A typical employee should be able to go to salarywizard.com and get an idea of ±10% of what their peers are making.

    Cases of dramatic deviation from the market prices for an employee are likely to get the managers authorizing such a transaction reprimanded by the board. That would simply be embezzlement.

    On the other hand, if the organization is a sole proprietorship, 100% of the money is that of the proprietor and that person has the right to do whatever they choose.

    The case for “open salaries” is probably best reserved for extremely large organizations (ex. Gov’t) where every conceivable job title will be held by at least a dozen individuals.

    If you have the secret competitive advantage that is going to change the way you’re employers business operates, and you feel so strongly about it, put you’re money where you’re mouth is: open a business and compete against them. Why debate it when you could let the market decide.

  24. Eric says:

    I’ve been here (Shanghai) for six months now starting a manufacturing company that is a WOFE owned by a med-sized public co in the US. To date, I’ve hired 25 people, mostly engineers, all with college degrees.

    My thoughts are:

    1. Salary information is MUCH more opaque here than in the US. We have yet to find a really good database with comprehensive recent information. However we did recently participate in a survey along with several hundred other Shanghai companies, and the initial data looks pretty comprehensive. It’s not information that the average rank-and-file has available to them, though, unlike the US where sites like Salary.com are readily available.

    2. I have been extremely surprised by the disparity of salaries between individuals here. The variability is much much higher than in the US. For example, I’ve seen college educated folks with a masters degree and 3-5 yrs experience (coming in for interviews) making between 5000 RMB and 30000 RMB per month in very similar jobs. It seems to roughly correlate to whether people are coming from state-owned or western companies, their level of English skill, and whether they have overseas work experience. In most cases, people who have western co experience, overseas experience, and good English are at the high end.

    3. Consequently we have quite a wide range of salaries paid in our company for people in similar jobs. I am quite concerned about the impact of this on morale (and frankly, the equity / fariness in general). However, I have seen very little evidence that there is ANY discussion about salary among employees here. It seems like the level of openness between employees is less than that of western (US) companies, at least it is certainly not more.

    4. While the level of variability is higher than I had expected (and higher than I hope in the long-run for our co), I feel very strongly that it’s necessary to have adequate differentiation between top-performers and lower-performing employees. I think that provides a great tool for managers to motivate and reward good employees, and provides a sense of development opportunity (even within the same job grade, without formal promotion). I would certainly not welcome a shift to more socialistic (my word and perspective) pay practices. My experience in Europe, where salaries tend to be very tightly grouped (e.g. in one European country I have experience with, the ratio between low-performing rank-and-file and high performing management employees is about 1:1.3!) is that it results in a much less motivated and enthusiastic employee base, and lower performance and flexibility for the company in overall.

    Interesting topic.

  25. Chris says:

    Let the market determine the price. Let it all be open and salaries determined by the value the worker brings to the company. There is no gun at an employees head. He/she does not have to work for that company if he/she does not. If he/she is willing to work hard and earn money for the company, than they will get more money than a lazy worker. It does not matter about exprience or degrees.

    I run a company here in China. I have staff with lots of acedemic degrees. but dont earn me much money. I have staff who dont have much acedemic exprience, but are just damn good at what they do and make me a lot of money. Who do you think I should pay more? Who do you think I should promote? Its easy.

    A job is not an inailienable right. God does not provide you one when you are born. One should be lucky to get a job and have the opportunity to provide their services for another. Without the boss, you would not have any job.

    As for transparency, it is the only way forward. You cannot have a market economy without it. Just becuase your Chinese does not mean you have a magic wand that changes the laws of economics. We are currently in a time that makes no sense. Irrational Exhuberance as one great economist has said before. Eventually, the laws of economics will correct the Irrational Exhuberance that is occuring in China. If China want to truly be weathy on its own accord (not through collecting billions of dollars in FDI, which will one day dry up when 75% of the companies send the FDI in today dont get any returns) they need to become effecient. The only way to be effecient is through transparency and accountability. This are not lofy ideals, they are the fundementals to sustainable growth and distribution of wealth. You cannot have sustainable growth and distribution of wealth without effeciency , transparency and accountability.

Leave a Reply

Sinosplice and all material found herein © 2002-2014, John Pasden. All rights reserved.
Sinosplice is happily hosted by WebFaction. Design by Dao By Design