Overcoming Information Asymmetry

A couple of years ago, I wrote a post entitled “Information Asymmetry in the Workplace” that discussed compensation in the Alliance framework proposed by Reid Hoffman, Ben Casnocha, and Chris Yeh. I maintained that, if we’re going to make the Alliance a reality, we have to overcome the information asymmetry between employers and employees, particularly around market value and compensation.

Companies have entire departments whose job is to collect market data about employee compensation. These are professional negotiators, armed with information not only from the company’s records but also from commercial data providers.

Meanwhile, employees are information-poor amateurs. Some turn to sites like Glassdoor and Salary.com for salary information, but the information on those sites is at best coarsely aggregated and at worst stale and skewed. Others establish their market value by obtaining competitive offers — hardly an efficient process to collect that information.

That’s why I’m excited about LinkedIn’s decision to launch LinkedIn Salary. I’m well aware of the risks around data quality, privacy, sample bias, etc. But LinkedIn is familiar with such problems, and it has a strong data team to address them. (Full disclosure: I worked at LinkedIn for over four years, and this product was always at the top of my wish list.)

Perhaps more importantly, LinkedIn has a strong track record of providing members with robust incentives to enter accurate data. And it’s easy to see how LinkedIn can do so in this case. For example, knowing your current compensation helps LinkedIn provide you with more relevant job recommendations — without disclosing your private information to prospective employers. LinkedIn can also motivate you to “give to get”: tell LinkedIn your salary, and LinkedIn can tell you how that number compares to its best estimate of your market value. Sure, you could lie. But trust begets trust, and this product is the epitome of LinkedIn’s pledge to put members first.

LinkedIn will need lots of data to make this product work — way more than the salary data from some 1 million members that it has quietly collected. And it will have to iterate until it gets the product right. But I’m sure LinkedIn can get there. And I’m excited to see my former employer taking this initiative to overcome the information asymmetry between employers and employees.

Long live the Alliance!

High-Class Consultant.

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