Intro

At Uptech we have a couple of practices that seem very counterintuitive for most people. One of such practices is self-defined compensation.

We introduced this system in January 2017. During the last year when we had it, we changed the way we do it several times, tested different approaches, but are very glad we have it.

In this article, we’ll share the details about how we do it and our results. I’ll also answer the most popular questions and give suggestions on how to put in place a similar process in your team.

Wait, but why do you need it, bro?

At Uptech we’re trying to challenge the standard approach to running organizations. In general, we’re a kind of organization called Teal. Our approach to building the team is based on self-management, wholeness, and purpose. If there is a person or a group that defines the salary — it creates the hierarchy and the concentration of power.

We decided to set up a system that would avoid it. We brainstormed different approaches to defining the compensation for the team members. Like taking the percentage of the revenue from the project or formula-based. None of them, in our opinion, could take into account all the complexity of the real world and all the contribution of each team member. So we decided to define the salaries ourselves.

money

Pre-requirements

As you might suspect, switching to self-defined salaries is not easy, requires lots of work and could be painful in the beginning.
In retrospect, I can identify 4 necessary conditions for the team to move to self-defined salaries:

1. Support of the founders/board of directors/top management

If the top management does not support it, the system will not work. It is the foundational component and the hardest one — to convince the top management it’s worth it.

2. Trust

As the foundation of any productive teamwork. No wonder that Patrick Lencioni put it in the bottom of his pyramid of the effective team model. All the team members should trust each other in making the decision about their salary. Without the trust, the system will collapse.

3. Transparency

Trust is important, but we’re all human and are often biased. According to Tasha Eurich, 95% of us think we have a strong self-awareness, but only 10–15% of us actually possess it. That’s why we need to be radically transparent, as Ray Dalio suggests. And discuss all the important topics, especially about weaknesses, problems, and mistakes. Self-defined salaries are based on the peer feedback. The team needs to be courageous enough to speak up the truth and share an honest feedback with each other. And help each other overcome our human biases.

4. Responsibility

With self-defined salaries the responsibility shifts from managers to each of the team members. They should be willing and ready to take the responsibility on them and hold each other accountable to their commitments. That’s why we have Freedom and Responsibility as one of our core values.

Open Sesame

Self-defined salaries also require them to be open. The idea of open salaries is not new, David Burkus has been talking about it on TED since 2016. Open salaries help avoid gossips, support trust in the team, reduce the gender wage gap. They are beneficial in the long run for both the organization and the employees.

[embed]https://www.youtube.com/watch?v=TvcNw4F0Y4Y[/embed]

Self-setting salary process at Uptech

For ease of the communication, let’s imagine that one of our team members, Bob, wants to change his salary. Bob, as all the other team members, is expected to follow this process:

1. Bob reflects on personal performance, achievement of goals and contribution to the company, and he decides to have a salary review.

2. Bob writes a 1–2 page salary review letter and suggests a change (so far always increase) in his salary and explains the reason for it. More details about it below.

3. Bob send his salary review letter to the HR. He also suggests 3–4 people who would be able to give him a detailed feedback about his work, from the soft and hard skills standpoints. These are usually the people who work closely with Bob, more senior, or his mentor. They are called the Salary review committee.

4. HR sends a Salary review survey to the selected people. The survey questions are designed to collect the feedback about the person’s work and his/her contribution to the company. More details about it below.

5. It takes about a week for people to complete the salary review survey and provide feedback.

6. HR collects the results and analyzes them with Bob. If the feedback is positive Bob schedules a salary review meeting. If the feedback is negative, HR works on the improvement plan with Bob to fix problems and get the desired salary after that. So far most of the salary review feedbacks were positive. Bob and/or HR might ask the salary review committee to clarify some points if needed.

Uptech team members inviting committee for Salary Review Meeting

7. Bob invites the Salary review committee for the meeting. During the Salary review meeting, HR shares the details about the collected feedback. Bob shares his opinion. Together the salary review committee suggests an improvement plan. Bob also presents his salary review letter and shares what he’ll be working on now, based on his previous goals and the feedback collected. If no one has any constructive objection, the salary is considered approved. HR makes proper changes to the salary doc. Any objections are discussed. Important to notice that the salary review committee does not vote or has to reach consensus. They give advice, and the final decision is made by Bob.

8. Bob is happy, he gets his salary, works on his goals and improvement suggestions he received.

Usually, the process takes ~2 weeks.

Any additional resources/feedback can be used to collect the feedback about Bob, such as client Net Promoter Score (NPS).

The communication about the salary reviews takes place in the #salary-review Slack channel. Anyone interested can give the feedback (even if he/she is not on the salary review committee), and anyone can join the salary review meeting.

All the salary review letters are stored in the shared folder, together with the salary review surveys results.

https://gph.is/VwQl2H

Salary review survey

We created the guideline for the team members how to evaluate Bob during the salary review. We’ve identified 4 main categories that are important for the company to be successful:

  • Technical growth and work results
    These are skills which are related to teammate’s main responsibilities. For developers, it’s coding, for sales — presentation, negotiation, research skills, etc.
  • Client communication
    It applies to negotiation skills, politeness in chat, letting the client know about the team progress, estimates, ability to conduct calls or meetings with the client, self-confidence and presentation skills. This is important for us as we’re a service company and communication with the client is one of the most important parts of our work.
  • Teamwork
    These are helpfulness, responsiveness, readiness to be a mentor for more junior teammates, etc. We expect Bob to be proactive in the teamwork, care about the team results, help the mates grow.
  • Contribution to the Uptech growth and development
    These are all actions and results which are not related to direct job responsibilities. That doesn’t mean that if Bob just does his job well, he doesn’t contribute to the Uptech growth. But in this particular case, we want to evaluate other efforts and contribution besides the main work.

The salary review survey contains 24 questions, both range and open. Each of them is designed to evaluate the team member in one of the 4 categories above. We made several iterations and changed the questions several times. And I’m sure we’ll change them again in a while when we collect the results and understand what to improve.

Some of the questions from the survey:
  • How would you estimate the change of level of this teammate’s hard skills and work results? (range question, with options: became much worse, slightly decreased, without significant changes, little progress, significant progress)
  • Our teamwork would be more effective if (s)he would change the following. (open question)
  • Could you name main achievements of this teammate? Which actions helped him/her to achieve it? (open question)

Our Salary review survey is not a big secret, and we could make it public. However, I don’t want to do it in order to prevent someone misusing it. Each company is unique, and I encourage you to research and create your own survey that would evaluate the person in the areas that are important for your company. Our criteria are most likely not what you need. And remember — you get what you measure.

Recommendations for the Salary review letter

Bob is free to choose the format of the salary review letter, but there are some recommendations:

  1. Bob should evaluate himself according to the 4 criteria above.
  2. Mention what he was working on from the last salary review.
  3. Mention the main achievements and goals completed.
  4. Acknowledge his failures, mistakes and weak spots.
  5. Set the learning/professional goals for the future.
  6. Mention what salary he would like to receive.

The salary review letters usually are 1–1.5 pages long. All the previous goals are visible to everyone, team members honestly acknowledge what was achieved, what wasn’t. We have a mentorship program in the team (called Goals) to help find mentors and set the goals.

send letter

FAQs

How is the first salary defined?

For people who just joined our team, we negotiate the salary in a usual way. Recruiter agrees with the candidate on the probation period (~2 months) salary and the main salary which will take effect afterwards.. After that, all the salaries are set using the Salary review process described above.

How often can team members request the salary review?

We have the rule that not more than every 3 months. Since we have a lot of juniors in our team they grow very fast. It is important to us so that they could receive the proper compensation as soon as they grow. It also encourages to grow faster. We believe it’s better to have frequent small salary increases rather than infrequent big ones. Usually, the more senior the person is, the less frequent the salary review takes place.

When does the salary change take place?

Salary applies from the next payroll when the salary review letter was submitted, but no later than 25th day of the month (the payroll is on the 5th). If the team member submits the letter later, then the salary change is not applied to the next payroll.

How to decide what the amount should be?

As the main scale for the amount of the salary, we use the market data. In our case, it’s Ukraine, and websites such as DOU or Djinni usually have good salary ranges. Bob is aware of the market salaries and estimates himself how much his skills are valued. You might be surprised, but with proper feedback, people are extremely good at evaluating their skills themselves. And they should be. Our target is to pay eventually in the top 10%, but we haven’t achieved it yet.

The team member with similar responsibilities made a salary raise, should I do it?
Short answer — No. Everyone is on their own path, has the goals and works on them. When one of the Android engineers increases the salary, there’s no rush among other team members to do the same. The fact that your team member had a salary increase is not a valid point in the salary review letter. It also motivates to grow when you see everyone around is constantly improving.

Is there any other compensation apart from the salary?

Yes, we have bonuses for recruiters for each candidate that was hired. We have sales-bonuses for the closed contract. This is how the market works in most cases, and we didn’t figure out how to find a better system for the sales and recruiting bonuses. We might reconsider it in the future.

Also, we used to give bonuses for good work and important releases when the salaries were closed. After we switched to the self-defined salaries we put the responsibility on the team to give such bonuses. But it turned out the team just never did it. So technically anyone can give a bonus for a good work to anyone, but it doesn’t happen.
As one of the future plans, we also want to give options for our team members in the future, as an extra bonus to the salary.

Does the salary inflation happen?

No. The salary increase is normal and correlates with the team members growth. Noone requested an unreasonable amount of salary (and I doubt anyone will do it). As in that case (s)he would lose trust from the co-workers. And the higher the salary is — the higher expectations are, and everyone is aware of it (since everything is public inside the team).
On the contrary, people can take extra time before the salary increase in order to accomplish the goals. Even though he/she could have a salary change faster. One of such cases was — our iOS lead Arthur postponed to have a salary review until finishing his open-source project.

payroll
The total payroll increase, for fixed number of people

Is personal financial situation taken into account?

No. Everyone has a different situation. Someone just took credit, another has a child. But it’s all individual. The personal financial situation is not a valid point to have a salary review. We think it’s fair to compensate for the contribution to the company, not for the external factors.
However, we do help team members when they’re in need. For example, giving 0% credit to upgrade their computers (we did it 10+ times), or in other tough moments for the team members (like the stolen Mac). All you need to do is just to raise your concerns and ask the company for help. And we’ll do our best to help.

Is company financial situation taken into account?

No. We share P&L and Balance sheet every month with the whole team so that everyone is aware of the financial situation of the company. As mentioned above, we compensate for the value brought to the company. And if the company cannot afford to pay fairly, then the person would better find another place to work for.

However, team members do care about the company financial situation. When we had a loss one month, several team members made suggestions how to save money to improve the situation. One of the suggestions was to postpone the salary reviews that month. We didn’t do that, but we were glad that team members do care!

What if I don’t have enough data to fill the salary review survey?

Indeed, to fill the salary review survey for Bob you need to be very familiar with him. Sometimes people say that they cannot provide the feedback for Bob. We consider it as an excuse in most cases. Salary review committee is selected not randomly, it’s the people that worked with you. If you have nothing to say about the person, then you probably didn’t pay enough attention to your co-workers.

Yes, there are cases when you cannot answer some questions (especially technical one for non-technical people) — it’s totally OK. Just write it down — that your evaluation will be mostly for soft skills since you’re not competent enough to give detailed technical feedback. But in other cases, you’re expected to take time, reflect, maybe observe better and do your best to share as much feedback as you can.

Can I arrange a machination to get a salary I want?

https://media.giphy.com/media/2pjspMQCi70k/giphy.gif

In theory — yes, in practice — very very hard. First of all, we trust our team members and believe they would not do it. However, you can have an agreement with a few people, select them for your salary review committee, choose the proper timing and get the salary you want. But since all info and processes are transparent, such scheming would be noticed very soon. After an investigation, I guess the result would be an immediate dismissal. Yeah, transparency rocks!

What if I disagree with the salary change? How do I share negative feedback?

You just say it. Yes, it’s tough, have to admit, but we couch our team to share the constructive feedback. It’s in the best interests of all the team members and the company in general. The sooner you share the feedback, the sooner person starts to improve (or leaves). By sharing the constructive negative feedback, you actually help your team member. Said in a proper manner, with empathy and genuine intention to help, constructive feedback makes magic.
We had 1 case when the Salary review committee said that the person does need to wait before the salary increase and work on a few improvement points. And the person did just that — was working hard, achieved the goal and got the salary in 2 months he wanted. Isn’t that wonderful?

What if the person is too shy to ask for the salary review?

We have a lot of self-management in our company. Each person is expected to take care of herself and the team. And setting your salary if just one of the responsibilities. We do couch and advice the team members that it might be a time for the salary review if (s)he postpones for too long. But we never force. When a person does not request the salary review for a long time — it’s might be an indicator that (s)he is not growing and improving. And it’s a bad sign that needs attention.

Another concern was that the shyest coworkers would never request a salary review and just leave. To have a manager that would set the “fair” salary for them. Well, in that case, it would be the right decision. Such person just doesn’t fit our culture of Freedom and Responsibility. And (s)he would better find a more suitable team for him/her.

Show me the numbers, bro

During the year since we introduced the self-defined salaries, we had 51 salary reviews. All successful increases, only 1 postponed. It took us quite a long time to develop the current system. Many alternatives and suggestions were considered and tested. And with every new change, it takes time until all team members get used to it.

According to our most recent team member NPS survey (conducted in December 2017), of our team is satisfied with their salary for 71.5% on average. I thought the number would be bigger. It seems counterintuitive to me why in the system where you can set your salary yourself you could be unsatisfied with it. We’ll investigate it and work on it in the beginning of 2018.
However, 71.5% still is a good result, according to the surveys (in the US), as people tend to be less satisfied with the salary than with work in general.

In another survey, our team members responded that freedom is one of the things that they value most in our team. And the ability to define your salary is a big part of it.

Summary

Summing up, open self-defined salaries have many benefits:

  • Builds trust
  • Encourages frequent constructive feedback and self-evaluation
  • Allows people to grow faster and be rewarded respectively
  • Supports self-management and responsibility, trains presentation skills and teaches people to stand for what they think they are worth
  • Holds people accountable, forces to focus on the value everyone brings to the company

Among the minuses:

  • Hard for people to get used to
  • Does not suit all (some just don’t get it)
  • Requires constant attention and work to keep the system trustworthy. And it’s hard. But we believe it’s worth it

Having open-self defined salaries is like a keystone habit for the organization. It transforms many aspects of the organization and builds a productive and healthy work environment.

What is your opinion on this? Do you have any concerns? Would you ever want to try a similar approach in your organization? Would be glad to hear your experience and/or suggestions in the comments. Let’s build great teams together.

P. S. we’re not alone, other companies practice self-defined salaries as well, for example, pals at Makers Academy.