Experiences With Self-Organization: Salaries



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Hugo
26 November 18
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Experiences With Self-Organization: Salaries

I started Ekipa (an agile agency helping organizations in Indonesia become agile) at the end of 2016. In my first company, Bridge Global, I had already experimented with agile and self-organization. Based on this experience, I decided in 2017, while building the team for Ekipa, to adopt the principles of ‘reinventing organizations’.

Laloux describes the ‘Teal organization’. Without describing all the details of Teal (I’d recommend reading his book if you want to know more), the core of Teal is ‘agile taken to the next level’. Agile teaches us to embrace change, work in short cycles and in cross-functional, self-organized teams. Teal takes this a step further by removing all hierarchy in the organization; let people self-select their salaries; push all decision making to teams and much more. In Ekipa we’ve adopted the principles and created ‘Ekipa reinvented’, which is the basis of our team.

Ekipa is a 100% self-managed organization without any hierarchy. Everybody is an owner and everybody shares in our success and income. Everybody works on the things he wants to contribute and we don’t’ have fixed job descriptions. We co-work with our customers to help them bring entrepreneurship and agility to their organization. Together, we create the company we want Ekipa to be and we create better lives for ourselves and the people we serve. We’re co-workers.

In this series, I will share some experiences with applying Laloux’ brainwork. One of the most interesting experiments in Ekipa is the self-setting of salaries. In Bridge, I had started with a traditional system of appraisals, promotion and raises. After a few years, I got tired of the discussions around salaries and we created a system for it. The system looks at ratings of employees (a mix of 50% client satisfaction rating and 5 other internal ratings). The rating a person gets decides the salary increment (which is 50% fixed and 50% variable based on the same rating per quarter). In Ekipa I decided to take it a step further: let everyone decide on his own salary.

In the first year of the experiment, the logic was this: when we hire someone, the team has a discussion about what’s fair and we openly share those views with the candidate. We tell the candidate the salary we propose and he/she can accept or not. Once the person joins, the advice is to have a yearly round of salary increments (in April), but if someone thinks it’s important, she can go for an increase any time. This is the principle we follow:

We are a commercial company; our goal is to make profit. Teams are 100% responsible for generating profit. All financial information is open and accessible to everyone. Teams make informed decisions based on the financial information available.

At the end of each year, 10 % of the profits will be shared with the team(s). Teams decide themselves how to distribute the profit between themselves. During the profit sharing session, teams also decide on the salaries of its team members. As the self-organized system is new, we will describe the process for profit sharing and salary increments at a later stage.

Open Book Management

Now, the open books management is one of the first challenges we faced. As we’re a new organization, we first had to get our financial report clear and easy to understand for everyone. Reading financial sheets isn’t the daily habit of most team members. Everyone joins the financial meetings, but I am not always sure the numbers ‘hit home 100%’. One person has a financial role and is responsible for organizing a financial meeting once a month to share the numbers. This isn’t always happening (others won’t ask for it either if she skips one since numbers aren’t everyone’s hobby), especially while everyone is busy with client work. To solve this issue, we started sharing a weekly report with some key numbers (turnover and profit for the current month, % overhead and cash balance + cash flow prediction).

Advice Letter

In the 2017 salary round, I wrote a letter to everyone with my advice on the team on salaries as well as the ‘application’ they could share. These are the most important parts of that letter:

In general, I believe that we’re a group of entrepreneurs. We are all working hard towards making Ekipa grow while remaining profitable. That combination of growth and profit is always something we must balance. If we want growth in our current model, it means we first need to invest in the right people. That brings the costs up and we need to suffer some losses for a while. If we manage to get a more stable income with coaching and/or selling certification exams online, then we could change the odds. We should be seeking more stable income streams. But as long as we do training and coaching, it’ll be the first invest, then profit might come later.

As a team, I feel we must ensure that while we have a loss, we keep costs as low as possible. So my advice for the current situation is to keep the salaries as they are. Once we get into profit, we could use the first profit to pay for some extra salaries. I welcome your suggestions on how to do this. What I suggest is that each one of you writes a short ‘application letter’ to the team (NOT to Hugo!) below in this document. In that you will describe:

  1. Your contributions to the team in the past 3-12 months
  2. The KPI’s that show your contribution in numbers (the proof of your ‘outcomes/achievements’)
  3. What extra salary you feel you deserve and why (if you haven’t described that yet above)
  4. Your suggestion on how and when to pay that salary (e.g. once we get profitable, I think I am the 3rd person who deserves an extra salary, because….)
  5. Possible ideas to make the extra salary more variable (so in case we become profitable and then get into a loss again, we could adjust the salaries based on the circumstances).
  6. Anything else you want to share

For me, it’s important that you all understand we’re in a startup period now. Things will surely improve in the next 6-12 months. I have built Bridge before and know that we are 100% doing the right things as a team. It’s a matter of time + more productivity.

Initial Results

This is my simple view: as long as the company’s losing money, there’s nothing to share. If we make a profit, everyone should gain. Especially in a younger company. Interestingly, most of the team seemed to understand and accept this. But some team members saw things differently. Because one team member asked for more to the team and ‘took’ a higher pay (almost 50% up), some others started asking the same. This lead to a lot of discussion around salaries. I realized this might be a downside of complete transparency and self-setting of salaries. People feel entitled to certain things and want remunerations to be fair. So if one asks more, everyone else can see that and they’ll ask more too. This may lead to an upward spiral, which is risky for a company.

Creating a System

In the second half of the year, we hired more team members (we’re now 15 people and will be 20 by January). Based on the initial results with self-setting of salaries, I concluded this wouldn’t work as we scale the team. There is too much discussion, emotion, and money at stake if it’s all ‘free to decide for everyone’. So we decided to create a system that would lead to clarity and fairness. This last part was very challenging; as we hired people from other countries (Australia, Holland, India), we got people who were used to much higher salaries than we are able to pay in Indonesia. Initially, we decided to create different categories for different levels of experience (junior, medior, senior). Our goal was to make no distinction between ‘local’ and ‘foreigner’.

After announcing the system (we created it with a smaller subgroup of people), we immediately got the discussion ‘I belong to another category’. That leads me to conclude this wouldn’t solve the discussion either, so we cut out the categories. The only differentiation we now have is between Scrum Master and Agile Coach. The salary is built up with different parts:

  1. Base salary
  2. % commission from the invoiced amounts to the customer
  3. % profit share
  4. Fixed accommodation fee

Point b helps us to differentiate, based on what the customer pays for our coaches. Towards customers, we do have different categories, based on experience level. A coach making a customer happy can go to a higher pay scale and with that increase his salary. That won’t lead to discussions within the team.

For the current team, this system works well so far. For new hires, it also creates clarity. Some tried to negotiate the salary, but this doesn’t work since we have this transparent system. We can’t make any deviations from the system since this would immediately lead to everyone else wanting the same extra benefit.

Conclusion

All in all the first experiences with the self-setting of salaries was mixed. I had read about other companies doing this (for example the companies of Ricardo Semler) for a long time. But the initial discussions and upwards spiral weren’t as I’d expected. The system we have now leads to clarity, no discussion and a feeling for all team members that pay is fair.

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