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Salaries in an Open Culture Organization

I think that if you have an organization of empowered self-organized smart employees then, you should consider having:

  • Open Salaries: Any employee can know any other employee’s salary. Disclosing salaries is not a crime
  • Salary increments/upraisals are not based on individual performance. We want to build an organization where everyone is equal and everyone is putting in their best. If not, then they are in the wrong place. It would be even better if everyone is contributing (net value) more or less the same. (Common to find this in 4-5 people start-ups)
  • Team members sit down and mutually decide their salaries (the numbers can be further adjusted based on cross-team discussions)
  • Every month the company discloses its Profit and Loss (P&L) statement for the month. Even better if you can automate this and we can see the trend.
  • Based on the P&L, employees can get a % increase or decrease in their monthly pay. (can be easily automated)
    • Say the company made 20% profit (2,000K USD) this month.
    • Last month the company had made 15% profit (1,500K USD).
    • So the delta is 5% (500K USD).
    • Now the company decides that some portion of this 5% should either be distributed amongst the employees or used to buy an asset for the company that will directly benefit all the employees (say Mac Book Pro for all employees).
    • Say the company decides to distribute 20% (100k USD) of the 5% profit delta (500K USD) amongst all it’s employees.
    • We distribute this amount (100K USD) to all the employees.
      • One way to do this is such that every one gets the same portion/increment. You can divide the total distributable profit amount (100K USD) by the total number of employees (say 100) which would be 1K USD amongst all its employees. So every one get 100 USD.
      • Another way to do this is instead of everyone getting the same increment, employees get the increment based on some % of their salary. So for example 100k USD needs to be distributed amongst 100 employees whose total salary comes up to 50K USD. Then everyone gets 2% (100K/50K) of their current salary increment. So if someone’s salary was 5k USD per month, then their new salary will be 5.1k USD.
  • Some organization might feel doing it every month is too much overhead. May be they want to batch it up and do it once every 6 months. This is fine, except that doing it every month is a great way for all the employees to be hooked into the companies performance.
  • Salary corrections because of market changes or other reasons are done on a regular basis but are separated from the salary upraisals.

The standard response I get to this proposal in companies from the management is that

“Employees are not matured enough to handle this in the right spirit”.

My response is

“You can’t learn how to swim by standing outside water and watching others swim, you have to jump in and try”.

  • http://www.testinfected.net/ Eric Anderson

    If I wanted to tie in this much risk to my income, I would start my own business. One benefit of working a salaried position is that the company assumes more of the risk of poor performance. The company also reaps more of the reward for increased profits.

    Not everyone has the stomach to assume this level of risk. I say this knowing that my employer has just finished a wonderful year. Under your system, I would have received a substantial raise.

    A compromise to the salary system that you propose would be one in which bonuses are given based on profits. Typically, this is called profit-sharing, and many of the employers use this. The difference for me as employee is that I can still count on my base salary.

    I understand I must still understand the business, market, and economy. Nobody promises me a job. If things go bad enough, salary cuts or layoffs could still come. That’s why I keep tabs on how the company is doing. That’s why I stay in touch with the sales department to see if those guys are happy. If they’re happy, then I have little to be concerned about.

  • http://www.testinfected.net Eric Anderson

    If I wanted to tie in this much risk to my income, I would start my own business. One benefit of working a salaried position is that the company assumes more of the risk of poor performance. The company also reaps more of the reward for increased profits.

    Not everyone has the stomach to assume this level of risk. I say this knowing that my employer has just finished a wonderful year. Under your system, I would have received a substantial raise.

    A compromise to the salary system that you propose would be one in which bonuses are given based on profits. Typically, this is called profit-sharing, and many of the employers use this. The difference for me as employee is that I can still count on my base salary.

    I understand I must still understand the business, market, and economy. Nobody promises me a job. If things go bad enough, salary cuts or layoffs could still come. That’s why I keep tabs on how the company is doing. That’s why I stay in touch with the sales department to see if those guys are happy. If they’re happy, then I have little to be concerned about.

  • http://agilefaqs.com/nareshjain.html Naresh Jain

    @Eric, Thanks for your input.

    I feel bonuses have a different feel and the desired outcome is quite different. ESOPs comes closer to the model described above.

    I’m really looking at employees having an equal stake and them taking the ownership, which obviously increases the risk.

  • http://agilefaqs.com/nareshjain.html Naresh Jain

    @Eric, Thanks for your input.

    I feel bonuses have a different feel and the desired outcome is quite different. ESOPs comes closer to the model described above.

    I’m really looking at employees having an equal stake and them taking the ownership, which obviously increases the risk.

  • Yasin Hamid

    I agree with Eric. It all comes down to corporate culture, but nevertheless the problem is that average employee can (very often) do little to increase profit or avoid loss. I worked for a bank where there were so many layers of decision makers that as developers there was no way we could contribute to P&L.

    I think this approach can be applied to small companies, once the company grows over certain size. The decision making moves more and more upwards and the employees have little to do about it.

    Besides, with my wife on maternal leave, two kids and mortgage I prefer less but sure money over big but unsure money. If I were single and without mortgage I might consider Naresh’s proposal (or I would just start my own business as Eric said).

  • Yasin Hamid

    I agree with Eric. It all comes down to corporate culture, but nevertheless the problem is that average employee can (very often) do little to increase profit or avoid loss. I worked for a bank where there were so many layers of decision makers that as developers there was no way we could contribute to P&L.

    I think this approach can be applied to small companies, once the company grows over certain size. The decision making moves more and more upwards and the employees have little to do about it.

    Besides, with my wife on maternal leave, two kids and mortgage I prefer less but sure money over big but unsure money. If I were single and without mortgage I might consider Naresh’s proposal (or I would just start my own business as Eric said).

  • http://agilefaqs.com/nareshjain.html Naresh Jain

    Yasin, this blog is about Salaries in an Open Culture. If the organization claims to have an open culture, then I think every employee in the organization has a significant say in the organization level decisions.

  • http://agilefaqs.com/nareshjain.html Naresh Jain

    Yasin, this blog is about Salaries in an Open Culture. If the organization claims to have an open culture, then I think every employee in the organization has a significant say in the organization level decisions.

  • Tathagat Varma

    I recommend ‘Maverick’ and ‘The Seven Day Weekend’ by Ricardo Semlar – he created such an organization, Semco, in Brazil, where people get to choose their own salaries – but it is a result of hundreds of things that he has done over there, like their is no organization chart, everyone has a portable office (meaning, no permanent place), any two employees can sit in the weekly board meeting, as the owner-promoter he has no veto rights, etc, etc. The point is: such organizations exist, but such results are achieved by doing hundered of things that result in such an open culture.

  • http://managewell.net Tathagat

    I recommend ‘Maverick’ and ‘The Seven Day Weekend’ by Ricardo Semlar – he created such an organization, Semco, in Brazil, where people get to choose their own salaries – but it is a result of hundreds of things that he has done over there, like their is no organization chart, everyone has a portable office (meaning, no permanent place), any two employees can sit in the weekly board meeting, as the owner-promoter he has no veto rights, etc, etc. The point is: such organizations exist, but such results are achieved by doing hundered of things that result in such an open culture.

  • http://agilefaqs.com/nareshjain.html Naresh Jain

    Thanks Tathagat. Yes those 2 books by Ricardo are very powerful. I agree that many things influence an open culture.

  • http://agilefaqs.com/nareshjain.html Naresh Jain

    Thanks Tathagat. Yes those 2 books by Ricardo are very powerful. I agree that many things influence an open culture.

  • https://www.jobsindubai.com/career.asp?qCareerID=3 Salaries In Dubai

    To avoid jealousy and unfairness, it's only right that any employee can know any other employee’s salary. After all, disclosing salaries is not a crime.

  • https://www.jobsindubai.com/career.asp?qCareerID=3 Salaries In Dubai

    To avoid jealousy and unfairness, it's only right that any employee can know any other employee’s salary. After all, disclosing salaries is not a crime.


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