The CEO of your organization wants to improve employee morale

Encourages Innovation: Employees often find innovative, cost-saving solutions once they see the actual numbers (the "how" and "why") behind company expenditures and revenue.

Improves Financial Literacy: OBM requires teaching employees how to read key financial statements (like the Income Statement or Balance Sheet), making them more valuable business contributors.

Critical Caveat: The "Context" Rule ⚠️

The success of OBM doesn't come from simply handing out balance sheets; it comes from teaching employees how to read and interpret them. The CEO must be prepared to:

Train Employees: Conduct mandatory training sessions on business finance, accounting basics, and what the key metrics mean for their specific roles.

Focus on Relevant Metrics: Don't drown employees in irrelevant data. Focus on metrics they can directly influence (e.g., cost of goods sold, profit margin per unit, operating expenses).

Be Consistent: OBM must be a continuous commitment, not a one-time disclosure.

2. Advice on Including Compensation (Salaries)

The decision to include individual employee compensation (salaries and bonuses) in the shared financial statements is a far more complex issue, and generally, it should be excluded from the standard OBM practice.

Rationale for Exclusion (The Majority View) 🛑

Risk of Internal Conflict: Revealing individual salaries often leads to resentment, distraction, and conflict among peers who perceive pay discrepancies as unfair, regardless of actual performance, experience, or role complexity.

Focus Shift: Discussions will shift from overall business performance and profitability (the goal of OBM) to personal compensation disputes, eroding morale rather than improving it.

Competitive Disadvantage: Disclosing top executive and key talent compensation makes it easier for competitors to poach high-value employees.

How to Address Compensation Ethically

If the CEO wants a high degree of transparency, compensation should be addressed structurally and collectively, not individually:

Disclose Total Compensation Costs: Include aggregate figures for payroll, benefits, and executive compensation as line items (e.g., "Total Compensation Expenses") on the Income Statement. This maintains financial transparency without revealing individual pay.

Focus on the Compensation System: Instead of showing individual pay, be transparent about the system used to determine pay. Disclose:

Pay Bands: Clearly state the salary ranges for different job levels and titles.

Performance Metrics: Explain how bonuses and raises are determined (e.g., tied to company-wide profit goals, individual performance reviews, etc.).

Ensure Fair Compensation: Before any public disclosure, the organization must conduct a pay equity audit to address and eliminate any unfair discrepancies based on gender, race, or other non-performance factors. Employees will only trust transparency if they believe the underlying system is fair.

Sample Answer

Providing advice on whether to implement open-book management (OBM) and whether to include employee compensation requires balancing transparency benefits against risks like confusion, conflict, and loss of competitive advantage.

Here is the advice for the CEO, broken down by the two main questions:

1. Advice on Open-Book Management (OBM)

You should advise the CEO that implementing OBM can significantly boost morale and performance, but only if it's done with training and context.

Pros of OBM (Justification for Implementation) 👍

Boosts Morale and Trust: Sharing financial data signals high trust, which can foster loyalty, engagement, and a feeling of ownership among employees.

Aligns Decisions with Strategy: When employees understand the financial impact of their daily decisions (e.g., controlling waste, managing time), their actions become better aligned with the company's profitability and strategic goals.