When self set pay does more harm than good in your company
Self-set pay in a company
You've certainly heard me speak A LOT about self-set pay and numerous benefits it offers, such as empowerment of staff or impact on people's autonomy. There's also a heck of personal and professional development that goes with being able to make this responsible decision in a way that is sustainable both for the individual and the business.
Yet there are times and ways of implementing self-set pay which can do more harm than good. This takes me back to when we first tried to implement self-set pay at GrantTree. We were extremely ambitious when it came to implementing different ideas around cultural development. We'd read "Maverick" and "The Seven Day Weekend" by an amazing entrepreneur Ricardo Semler who I wouldn't hesitate to call the grandfather of empowering business cultures. We'd studied cultural innovations implemented by Valve Software and Zappos. We were ready to fly in the world of forward-thinking cultures. Or so we thought. The reality of how inexperienced our business actually was was about to bite us back in our butts.
After we announced we were going to implement self-set pay the first brave soul to come forward and announce they were going to change their pay was the most senior person in the company next to us founders, our first employee. He'd left a cushy job in an investment bank a couple of years back in order to join a small startup run by a crazy couple, which out of necessity came with a big pay cut. Still, he was up for the challenge and the wild ride any startup journey is. So it was only fair that now the company had more resources he stepped forward to up his pay.
At the time we wanted to implement self-set pay using the so-called advice process, taken straight out of "Reinventing Organizations" by Frederic Laloux. It boiled down to actively seeking advice from individuals impacted by a given decision while still being the sole individual responsible for making it. Whether you incorporated any pieces of the feedback you gathered and which parts of it were entirely up to you. As was the responsibility to deal with the consequences of your decision. We were using the advice process for quite a while to make all the major decisions in the company and it functioned well. It was a major improvement on the consensus-driven decision model, absolutely disastrous when it came to getting anything done, as one person could easily sabotage a decision that took ages to arrive at in the first place (as all involved needed to be consulted and agree). It made any simple decision, like which office chairs to get, an ordeal. By contrast, the advice process, while still involved, was much more efficient as it put the sole responsibility for moving something forward in the hands of one person. And that's what our first employee, let's call him John, restored to when it came up changing his pay.
Naturally, he came to both me and my co-founder Dan to seek advice on the pay he wanted to implement. When I heard how much he wanted to raise his salary, I panicked. It wasn't as much about the company not being able to afford it. I was mostly terrified about the example he was setting and what impact that decision, if implemented, would have on the rest of the team. It didn't seem to me the decision John was seeking advice on was well researched or justified by evidence (which was natural given Dan and I hadn't really given the team any guidelines on how to conduct the pay review or benchmarks to work with, we simply introduced a complex concept and expected them to run with it!). And - my mistake - instead of advising against implementation and taking a side step, I went straight to my cofounder and after some deliberation, we took a decision to temporarily abort the self-set pay.
With this step, we went back to salaries being set for our people instead of by themselves, for themselves. My co-founder and I didn’t want to be the ones making this decision though and so we appointed the pay committee (aka “moneypenny’s”), comprised of different members of the team, with varying levels of experience and seniority, and gave them the mandate to design the pay system for the entire company. The way they did this plus the exact process they went through is outlined in another post here. As a result of their work, we had a part matrix, an elaborate way of placing people on it which was egalitarian and probably as close to fair as was possible at the time (I don’t believe any pay system can be 100% fair to everyone involved).
Stepping back from the decision to implement self-set pay did cost us, however, damage in terms of reduced trust of the team for a while. It felt like we definitely took a step back in terms of our cultural evolution. A word of caution based on - rather painful - first trials of implementing self-set pay in my company would then be: make sure your business is culturally ready to pull off the implementation of self-set pay which is more often than not a radical move. This means people are ready and able to understand the significance and impact of their salary decisions. If necessary, focus on intermediary steps that will get you there in the right time first. This could be bringing to life a body, as we did, that will create a payment system for everyone across the board, taking into account all sorts of factors that might be difficult to process for a single individual. And, importantly, equip your people with the right tools and practices so that they feel guided in the complex and responsible process of changing their pay.
If you found this post valuable, you are very likely to enjoy my new book “Laid Bare” where I delve into quite a bit more detail around startups and innovative business culture.