Fog Creek has a "ladder" system based on some fairly objective criteria. Based on years of experience and certain assessments of project scope and skill level, each employee gets a number between 8 and 16 that determines pay. This means that compensation is based on performance.

Now, the only point of controversy is whether the employee and employer agree on performance. If there's a discrepancy there, at least there's something meaningful to discuss and, if the difference is irresolvable, then they should separate.

This isn't perfect, but the gossip-driven salary-discovery system is even more imperfect and has the same problems.