Q: How much of the financial information should we share with our employees?
A: Many have argued this point both ways at our management conferences. I personally believe you should share only the information they need to do their job, or to understand their compensation plan. Now, this of course depends on their position. Senior management and shareholders (if an ESOP or partnership) needs detailed financial reports, but beyond that, a summary of how the company is doing overall is generally best.
I’m also not a fan of sharing detailed financial information with those who don’t understand it. In other words, unless the employee truly knows gross and net profit variables, where expenses should be on the P&L, what a balance sheet reflects, what accrual based accounting is, impact of WIP, depreciation, tax implications, etc. then spare them and yourself from the confusion it generally creates.
Unfortunately I’ve seen more harm than good come from sharing too much information. A recent example was a member company had one unusually good year and shared the information with the entire company as a way to celebrate. That created a steady stream of requests for wage increases rather than the desired outcome. The employees didn’t recall the two prior years when the owner had to invest personal funds to meet payroll on occasion. Maybe I’ve just seen too many examples of sharing the details backfire, but that’s my opinion. CW