In publicly held companies, company performance and executive compensation is, just that, public. All shareholders receive both an annual report and a proxy statement and this information is contained within these documents. Additionally, it is a simple matter for a non-shareholder to obtain this information, sometimes with a simple web search, or at least with an inquiry to the company.
Yet in many, perhaps, most, privately held companies, this information is closely guarded and not shared.
Why not? Lots of reasons.
The reasons differ depending on the stakeholder we are discussing. Focusing on employee stakeholders, some of the responses I typically hear are:
- Why do they need to know?
- They won’t understand the financials.
- There will be resentment if they know what the owner(s) are paid.
- There will be resentment if they know what their colleagues make.
What if instead, you considered radical transparency? What if:
- you educate your employees so they understand the balance sheet and the income statement?
- employees learn the investments the owner has made and the risks she has taken, and continues to take, to finance the business?
- employees understand the expenses the company must incur to operate the business, beyond the COGS?
- employees begin to understand the relationship between labor utilization/efficiency and profitability?
- compensation was based on a combination of market data and performance so that employees understand why they are paid, what they are paid?
Transparency without the accompanying education will not work. Thus, radical transparency requires an investment. The good news is, it’s an investment of time, not dollars.
As the war for talent continues, with no apparent end in sight, is radical transparency an investment that may lead to employee loyalty and therefore increased retention?