The Pros and Cons of Open-Book Management | Labor & Employment > Compensation & Benefits from AllBusiness.com
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The Pros and Cons of Open-Book Management

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Today business owners who keep employees apprised of the latest financial company news are not uncommon. Major corporate decisions are often shared as an effort to keep workers feeling both informed and invested in the operation. Some businesses take this dissemination beyond transactions or personnel decisions, however, letting their workers view the company’s financial statements and other similar details.

The arguments for and against this practice, known as open-book management, are varied, and we’ll explore them here.

The Case For

Businesses that practice open-book management contend that providing financial details to employees helps encourage out-of-the-box ideas from those who feel more vested in the company’s success. They believe this added employee focus on the success of the business benefits the bottom line as the operation becomes more cost-effective, maximizing each employee’s value.

Former General Electric CEO Jack Welch contends workers in an open-book setting “feel a greater sense of ownership and urgency, often sparking improvements in processes and productivity" when they know what they are up against. As such, the mentality that they are all in the business effort together can serve as a jump-start of innovation and teamwork.

Open-book management may be of particular interest to any company in which employees’ pay is directly impacted by the success of the business. In a small medical practice, for example, in which staff is paid based on a percentage of the gross income, providing financials offers a transparency that clarifies the paycheck. If you offer bonuses based on meeting specific goals, and employees can see in black and white that those targets weren’t reached, staff is less likely to complain or wonder about their compensation. As a result, their efforts may improve as they seek to raise their own reward.

The Case Against

Business owners who choose not to open the books to their employees say it's because it could otherwise set them up for malcontented workers, who will be quick to extrapolate financials to determine how much of the corporate pie management has and, more vitally, how much less they do.

An owner of a small business noted that after revealing general and administrative rates, his workers were comparing their perceived contributions with those of the workers higher on the pay scale. And it’s no leap to conclude that an employee who feels undervalued is likely to gravitate toward providing less value.

Also, should the business’s bottom line increase, employees are more likely to seek immediate improvements in compensation rather than being satisfied with the promise of future reward. The concept of team benefit is hard for business owners to maintain for a lengthy period when employees don’t see a personal reward.

Implementation

Should you decide to share financials, consider how you will reveal the information.

Many companies that share financials offer accounting classes and meetings on a monthly or biweekly basis to explain the details and field questions. Companies don’t hand out 10-Q reports but offer simplified versions of the records that provide the core vitals of the company without overwhelming employees. The meetings allow not only an open sharing of the figures but also a discussion of what those figures mean going forward.

Communication is key to successful open-book management. If you are comfortable sharing your company financials, you must also be comfortable explaining what those numbers mean for your staff. Otherwise positive reports can yield false expectations; and conversely, negative reports can raise fear regarding job security.

Ultimately the decision whether to proceed depends on your comfort level and your knowledge of your employee base.

Gregg Henglein is an award-winning freelance writer and editor who has covered business for the Wall Street Journal and Dow Jones Newswires.

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