Problem: I know it’s important to make sure employees get the big picture about company performance and strategic goals but I’m not sure whether and to what extent financial information should be shared. Do employees want this information and what information should be shared to maximize the benefits of transparency?
Employees are among the most important stakeholders in a company and most are interested in the company’s financial information. Employees need and deserve a complete and accurate picture of financial performance. Sharing good or noncontroversial financial information is easy, but for many managers sharing complex or negative financial information can be challenging.
Financial transparency within an organization is an issue of importance. A recent Robert Half survey of 2,100 companies reports that 25 percent of the surveyed firms consistently provide all employees with financial information. Management’s willingness to share financial information transparently, especially salary and compensation data, with employees builds trust.
Furthermore, transparency within an organization can increase the speed and efficiency of the decision-making process. Providing employees with a clear picture of performance and expectations encourages them to pursue the company’s objectives and identify their contributions. Research has shown that providing employees with financial information creates a sense of fairness and builds trust, important components of employee happiness and engagement.
Financial transparency is not a “one-size-fits-all” approach. Some companies may limit financial transparency to key financial figures and benchmarks while other companies provide much more detailed information, including salaries and bonus data for all employees. Managers must determine what breadth of disclosure best meets the needs of employees and helps achieve company objectives.
The graphic identifies key elements that should be the foundation of any approach to intercompany financial transparency. Disclosures should be accurate as well as objective. Employees must have confidence that the disclosed numbers represent accurate conditions.
Making sure financial disclosures are clear and easily understood is vital. The disclosures should be purposeful — the “why disclose this information” should be properly explained to and understood by employees. Finally, the disclosed information should be participatory in the sense that employees realize the important role they play in providing, interpreting and analyzing the financial information. Successful financial transparency goes beyond providing information to encouraging employee engagement and interest in the information.
There are several actions managers can take to ensure financial transparency is effectively implemented with an organization:
1. Link financial transparency to the company’s objectives and goals. Employees are generally aware of the long-term objectives of the company. Managers should link the disclosure of financial information to these goals. They should also communicate that increased transparency helps ensure that everyone is working toward the same goals.
2. Provide financial information in a variety of ways and welcome feedback. Companies have a lot of choice in how to provide financial information to employees. The most common method of delivery is via employee meetings. This allows the opportunity to ask questions, but may not facilitate a deep dive into the information. Another common method of delivery is via email or some other electronic platform or “dashboard” that allows ready access to such information. Providing employees with financial information before meetings gives them the time to process the information, provide feedback and brainstorm questions.
3. Be consistent in content and breadth. Companies have many options as to the breadth and extent of financial transparency. It is important to be consistent. Financial transparency can be a useful tool, but managers should be cognizant of information overload. Many companies pursue a full transparency policy — allowing employees access to up-to-date daily financial data before it is publicly released. Other companies focus transparency on providing a few key financial figures that all employees can understand and easily link to firm performance.
4. Language matters, so managers should be cognizant of wording. Financial transparency means disclosing good and bad information. Managers should make sure financial information is disclosed in clear and concise terms. Positive financial information should include language that acknowledges employees’ role and effort in achieving this outcome and how to continue or sustain such efforts. Disclosure of negative financial information should include language that honestly and clearly communicates the situation, but managers should focus the discussion on ways employees can use this information to make improvements that realign with the company’s overall goals.
Assma M. Sawani, Ph.D., is an assistant professor of accounting at the College of Business at UCCS. Her research focuses on the capital market effects of accounting disclosures and regulation as well as international accounting issues. Prior to her academic career, she was an AIS consultant and internal auditor. Contact firstname.lastname@example.org.