5 learnings for you to let your employees decide their own salary

When you are a leader in a hierarchical organization and you want the organization to become more autonomous, allowing employees to decide their own salary sounds like a logical thing to do. But in my experience, this can be a difficult and complex challenge.

Decisions about your own salary or raise are a real leap when you want to become a self-managed company. From my own perspective, this is the crown jewel of becoming fully autonomous. Below I will describe some learnings from my adventures when taking this step. I really love to hear yours! Share them as a practice or respond below.

Organizational debt

When we are talking about an existing company moving towards self-management, the first challenge is the state you are in as an organization. You have your own ways of doing things, your own rules, your own processes: Let me call them your organizational debt. These were formed over time, whenever you took a decision about how to do things. In that period of time, you made decisions that would have had an impact on the salaries as they are today. Maybe you paid an employee more because you really needed him/her at the moment. Even if that wasn’t the fairest thing to do. Because of this organizational debt, your salaries can be very different and not very fairly distributed.

It’s psychological!

Next to this, the topic has a heavy psychological part. People can be individualistic when it comes to their paychecks. This is because of how our society works. We form our lives because we earn a certain amount of money. We buy a house/car/boat/bike because of our earnings. And we think a salary will never go down, but only go up. We are building our own golden cage, which will have an impact on our own freedom. So whenever you start fumbling around with a salary, people can react to protect themselves first.

The reward an employee gets from your work has to feel fair. It’s not even about the amount, but how it refers to colleagues, friends and surroundings. Salary and satisfaction has a positive effect on each other (Beutell, Nicholas J, & Wittig-Berman, Ursula, 1999), so we need to keep this in mind.

Five learnings

So it can be challenging to start. But what are the learnings, that you should take into account when starting with this step towards full autonomy?

1. Start small

Before the employee can even think of deciding his own paycheck or raise, you first need to give insights into everyone’s earnings. And here it already will get tricky. Some people aren’t happy about what they earn. These people aren’t your real problem. They will gladly open up and show everybody that there is something wrong. The real challenge lies with the people who know that they earn too much, or more than their peers who do the same work. They will not be eager to open up as quickly. You can start radically by opening up the salaries at once. But in my experience (see nr 3&4) this can go wrong fast. So, start small.

For example, start with opening up the books. To scary? You don’t have to do this in detail directly, but divide it into categories. What section (maybe start with percentages) of the spendings goes to salaries? When you have taken this first step, you can begin by dividing the spendings for employees in categories. Don’t take to much time between this steps. But be sure everybody understands how it works and why you are opening up. Take small steps towards complete transparency.

Another example is to decide the % of the raise together. How much of this year’s turnover will we transform to a raise for the employees?

These examples may help you towards transparency. But keep in mind, take the pace everybody can manage. Going to quick can really make damage you can not repair. Start small, start now.

2. Make some rules and boundaries together beforehand

Is it possible that the salaries will go down when we get insights into each other’s salaries? Is there a boundary on a raise? It’s important to be crystal clear about what you all see as your rules and boundaries before you start.

This will make sure that everybody knows what to expect. Needless to say: you are going towards (or are) a self-managed company, so be sure that the rules and boundaries are all created by the people themselves.

Next to this, psychological safety is an essential factor when you are planning to do something like this. Discuss these topics and be sure that there is consensus within the group about how decisions are made.

3. Be sure everybody agrees when making a decision

Because this topic can become so emotional, it is important to make sure everybody agrees on the decisions that will be made. This doesn’t mean that every decision needs to be a unanimous decision. You still want to do this, so you do not want a 100% consensus about each point. What you have to do is to make clear about what topics need to be unanimous and don’t.

For example: In an organization that wanted to take this step, they decided that opening up all the salaries for everybody should be a unanimous decision. When someone didn’t feel right about it, it would not be done. After taking a series of small steps towards more autonomy, one team finally said they needed this information to make solid decisions. By leading by example, the other groups followed one by one until all salaries were fully transparent.

There is no right or wrong, as long as you agree on how the decision is made and stick to that.

4. Do not be hasty

For some people, the salary isn’t a big topic. Those people can become a little bit impatient about the process. But the process can take a while.

One example I experienced went very wrong. A manager of a company wanted to get the salaries transparent for everybody. He decided to write down his salary on a big whiteboard. This can be a good way to stimulate leading by example and go over a certain bump. In this case, the problems as described at point numbers 1, 2 & 3 occurred. There were no rules, so not everybody wrote down their salary. But some did. Employees who didn’t join in did see that others got compensated more than they did. The whole process become a burden, people felt pressured to tell their salary even if they didn’t want to. As a result, people became unengaged and even left the company.

So take it easy. Go at the pace which the company can handle. How? Keep asking your co-workers. Which step can we take towards transparency?

Like I always say: change is a process, not a project. Give it time, and you will get there in your own way. Keep doing experiments and see what will fit you best!

5. Let them agree on the method themselves

When the organization or a team tells you that they are ready to decide their own salary or raise, be sure that they can find their own way how to do so. In my experience, they can do this themselves. Let them try and learn from their mistakes. Also, it is not a problem when one team uses a whole different method than the other. They will create their own way that they feel comfortable with.

Some examples I experienced myself are the Tikkel method and the Mathematical method. They are both really different approaches, but both cases managed to get to the point that all the team members were happy about the outcomes and salary they all agreed on.

Also for this big challenge: Please do not hesitate to start. Start small and start now. Begin with prototyping towards your ideal situation using the Prototyping.Work methodology.

Beutell, Nicholas J, & Wittig-Berman, Ursula. (1999). Predictors of work-family conflict and
satisfaction with family, job, career, and life. Psychological Reports, 85(3Pt1), 893-903.

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