Why Do Private Companies Keep Salaries Secret, and How Does It Affect Employees?

csrao77
Why Are the Salary Packages of Employees in the Private Sector Kept Confidential?

What are the advantages and disadvantages to organizations and employees by keeping the package/CTC confidential?

In the private sector, it is common practice for companies to keep employee salary information confidential. This confidentiality is often maintained to prevent potential conflicts among employees regarding salary discrepancies. By keeping salary packages private, companies can also maintain a competitive edge in the market by not disclosing sensitive financial information to competitors.

Advantages and Disadvantages of Salary Confidentiality

However, there are both advantages and disadvantages to organizations and employees when salary information is kept confidential.

Advantages for Organizations

One advantage for organizations is that it allows them to negotiate salaries individually with employees based on their qualifications and performance, rather than having fixed salary structures.

Disadvantages for Organizations

On the other hand, a disadvantage could be a lack of transparency leading to potential feelings of inequality among employees.

Advantages for Employees

For employees, one advantage of salary confidentiality is that it can protect their privacy and prevent unnecessary comparisons with colleagues.

Disadvantages for Employees

However, a disadvantage could be the lack of understanding about how their salary is determined and whether it is fair compared to industry standards.

Overall, the decision to keep salary packages confidential in the private sector has both pros and cons that need to be carefully considered by organizations and employees alike.
pon1965
Performance-Based Packages in Private Companies

Private companies' packages are performance-based. Variable components are included, and these variables are determined based on appraisals. This approach ensures that the organization's goals are met, which is why private companies tend to outperform government companies. The "Perish or Perform" mantra is commonly adopted in private organizations.

Regards,
Pon
csrao77
I beg to disagree with this logic, sir, because:

1. It is difficult to keep 100% confidentiality. Some HR/IT/Finance/friends can always know.

2. One will always have doubts about whether they are being offered the right package (even the person who is getting more) as per their caliber. Also, HR professionals will always try to negotiate lower to showcase their efficiency.

3. Not everybody has the same negotiation skills. Due to this, the right candidates who do not possess good negotiation skills or knowledge of job market trends, as they are confidential to many, will suffer.

4. Performance appraisals are always more subjective in nature, whether in government or private organizations (more so in private).

I feel that keeping the CTC/package confidential can lead to more discontent and unhealthy comparisons, which may not be beneficial for both organizations and individuals.

Instead, organizations can openly declare CTC/PACKAGE bands for each grade/designation. For high-performance individuals, they can receive quick promotions and special bonuses confidentially.

Only variable package components (performance-linked incentives) can be confidential; all other components need not be confidential.

I feel that comparing the performance of government and private companies solely on the parameter of confidentiality of the package is difficult, as they operate very differently on many parameters (accountability, freedom in operation, systems, regulations, vigilance/ethics, etc.).

Please let me know if you have any questions or need further clarification.
nileshkumarh@gmail.com
Understanding Salary Confidentiality

If we keep the CTC or package confidential, what does it mean? No company declares that the salary or package of XYZ is this. It declares the increments, not publicly. The question of confidentiality doesn't arise.

Regards
csrao77
Public Disclosure of Salary Bands

I mean the CTC/package bands/range for each designation/grade in a company should be made public/known to all to avoid unnecessary confusion for everyone (existing employees/prospective candidates, etc).
vinunair
The practice of having CTC/package bands/ranges is followed in sectors like manufacturing, which have a comparatively stable attrition rate. Industries like IT/ITES have a very high attrition rate, which may lead companies to try to retain performers through salary negotiations. This also depends on the company culture, where some companies do not shy away from distinguishing their key performers in compensation, whereas some companies are slightly conservative.

Regards
saswatabanerjee
That will not work. Giving bonuses is not useful as people don't know who received what. It's like not knowing anything at all. Though HR knows, they usually do not disclose this information. People can lose their jobs for sharing confidential data. In most companies, salaries are not set by HR but by functional heads. Many functional heads prefer to delegate this task to HR as they lack confidence in their own abilities.

Everyone doubts whether they are being paid fairly. Comparisons are made not just within the company but across different companies, leading to ongoing problems. Currently, competition and dissatisfaction are based on speculation. However, if the actual figures were available, discontent would likely emerge. Few employees can objectively assess their own performance compared to others. They may not comprehend that someone receives a higher salary because they perform better.

Performance appraisals are subjective. Except for piece-rate workers, your performance is evaluated based on your reporting superior's perspective. This aspect cannot be changed.
csrao77
Thank you for the insight/views on the subject matter. I feel the situation where everyone doubts whether what they are getting is fair or not is also not good for organizations and employees.

Also, if the ranges/bands for grades/similar profiles are not known, and if HR professionals do not rationalize the compensation packages for similar profiles at the time of recruitment, the right candidates who may not have proper negotiation skills and are ignorant of job market trends will suffer. This is also not good for organizations.
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