JournalSep 2014

Here’s why I revealed all of our team salaries

Update: a few months after we published this article, we went one step further and switched to a system where our whole team chooses their own salaries. You might want to read the article about that change, too. And for the latest overview on how we’re managing self-set salaries, take a look at our Playbook page.

This week, I hit a goal I’ve wanted to reach for a long time: making team pay and earnings completely transparent within our team.

That means everyone on the team can see how much each person is earning, and that includes me as the founder (and director of our incorporated company).

In truth, it’s a massive relief to finally reach this point.

I’ve long followed companies like Valve, Semco and Buffer, all of which take pretty radical approaches towards the way they structure their companies and teams. Indeed, Buffer’s approach to open salaries is what originally started me off on this journey to opening up our own salaries.

But having done so, I’ve seen a fair amount of scepticism from elsewhere. So an explanation is probably in order.

The traditional way

I’ve heard the criticism that sharing this sort of information somehow removes a little of my own power needlessly. Some have said “I don’t see why you would share this information–what does it achieve?”

And sure, what I’ve done here isn’t essential. Building up our business into a traditional agency–one where I’d have a defined exit strategy to cash out and get out of the door, wouldn’t be that difficult. Plenty of others have done the same, and building mediocre companies with the intention of exiting when the job is half-done is an easy option.

But while there are a few exceptions, I don’t look at many agencies these days and see anything I want to do myself. It has all been done before–and you can certainly make plenty of money doing it, but the potential to do something really different and build a fantastic company within the restrictions of that ‘agency way’ is seriously limited.

For your times they are a-changin’

As the present now Will later be past The order is Rapidly fadin’ <small>Bob Dylan – The Times They Are A-changin’</small>

I’ve worked in traditional companies like law firms and ad agencies in the past. The most frustrating part of those experiences has been the lack of speed and just the crippling rigidity. When you’re not at the top of the ladder, you’re ultimately powerless. You’ve close to zero chance of shaping the direction of where the business is going and making a meaningful contribution.

You could forgive people in more traditional industries for being a bit sceptical about how the Internet is going to change everything. After all, haven’t people been saying for decades that “we’ll all be working remotely in just a few years and offices will be a historical relic”? But they’re still around.

But our team works with startups constantly, helping them prototype and design products. I can’t see how we can exist in this world, which is one of transparency and constantly sharing knowledge with others, without being influenced by it. How many startups do you know, who manage to be successful while at the same time stay closed off and secretive? Even stealth mode is a temporary state of affairs:

“Whereas secrecy is the historical norm in many fields of business, start-up companies often thrive on publicity and open sharing of information. Openness is common to the business culture of Silicon Valley and other technology centers, with competitors freely exchanging news of discoveries, products under development, and other company news. Public relations is considered useful to attract interest from talent, customers, and investors, and to promote the careers of the people involved. Additionally, competitors often collaborate on projects, or buy each other’s products.”

I think the democratising effect of open-source software (what we’re really referring to here is the openness and collaboration that comes from GitHub’s cultural impact) is changing not just the way we build software, but also the way we build companies who build software. First, your team expects transparency throughout a codebase–then, it expects that same transparency in the way your company operates. And what I think many older people don’t fully grasp is this shift towards demanding transparency as standard. It can only be a matter of time before that starts to trickle down into companies outside of the tech sector.

It keeps us honest

Some people consider this to be a bad thing–I don’t. The best thing about this kind of transparency is the way it keeps everyone accountable. There’s just no place to hide.

When there’s no transparency, it’s easy for individuals to exploit it and take decisions which aren’t necessarily fair. That’s now far harder. The best thing about the transparency is that it’s now a natural safeguard against any inclination I might have to over-reward myself. If I want or need a pay-rise, I have to justify that to the team.

What are you trying to gain by concealing team salaries, anyway? Most likely, it’s because there’s something about your current salary ratios which you think is not quite right. At the root of it, taking advantage of the ambiguity is at the very least the lazy option, to allow you to procrastinate on figuring out a fair solution.

For us, I honestly feel that the best way to build a fair compensation scheme–one which makes pay a non-issue–is to make the topic an open one where everyone has input and visibility. This way, any unjust inequalities–like that one engineer whose pay is way out of sync with the rest of the team–are visible right away, and simply can’t exist. It’s the difference between walking down a dimly lit street at night, and walking down it in the middle of a sunny day. It’s far easier for that sinister character to go unnoticed in the gloominess.

And it’s a natural brake at the top-level–I don’t like the way that executive pay dwarfs that of people further down the organisation, no matter how much ‘value’ you try to argue that those executives deliver. I don’t think we can build a fair society on gross inequality, and that ideology extends to the way I want to build our team too. Transparency is the first step, and it’ll help us stay on track.

You’re better off if your team is motivated

The company I want to build is not the one which will make the most money to line my pockets. It’s the company I would want to work for myself. The reason I founded my business in the first place was so that I could be in control of what I wanted to do–that’s why I want to take steps towards giving that same autonomy to everyone who works alongside me, the same way as I’d want for myself.

How can it be fair that the people at the top get to build themselves a nice nest egg and an early retirement at the expense of those beneath them?

I suppose I’m an optimist when it comes to human nature. I’m sure there will be situations where we hire the wrong person, and someone with ulterior motives manages to sneak through our hiring process. But if that happens, we’ll deal with it as and when it comes.

And sure, I will make mistakes. We’ll take missteps and we’ll put ourselves into situations where my team has to deal with the stress and pressure that comes from those miscalculations. But in the long-run, I think we’ll be better off.

When I first started out, I assumed you’d have to watch and push people to get stuff done. Just as I initially thought that having your team always available, would be a good thing. Now I know how wrong that was. In fact, my biggest problem at the moment is trying to get the team to slow down, reduce their working hours, and invest time in themselves, not just on our business.

I believe that if you hire smart people, give them the tools and resources they need to do a good job, pay them fairly, set up the business to support them, focus on removing roadblocks, and help them to grow, they’ll deliver great work. Ultimately, I think that building a fairer company will make us more successful in the long-run. If my team is happier, then I will be too–it doesn’t all come down to how much money you earn, personally.

This isn’t perfect, but it’s a step closer to a better solution

While I don’t underestimate the importance of strong leadership, giving a team a clear direction to head in, and helping them stay on track, I also think it’s arrogant to lead from a position where you’re saying “as the CEO, I know everything there is to know, and my decisions are always perfect”. How can one person make the correct decision in every single situation?

Since we no longer have to obscure how much people are being paid, we can open up our internal finances completely–that makes it far easier for us to streamline our processes, automate things, and get several eyes on the finances to help us make smarter decisions.

Unlike Buffer, we don’t have any funding at all–we’re entirely bootstrapped and at this point have never even taken out a loan to fund the business (although we’re going through that process at the moment). As a smaller team, only just moving to open salaries, we still have to figure out our own “salary formula” that rewards experience, ability and compensates for the location of our team members. Since we’re a remote team, there are a lot of variables for us to figure out. That’s what we’ll be doing in the next few months, as we look to move beyond the first step of opening up the salaries.

In time, maybe we’ll even go as far as Buffer have done and make these salaries public. This part of the equation is an interesting one, since we’re not in the SaaS industry and we’re working directly with clients. I’d like to do it though–it still feels like the reluctance to share these figures is a symptom of other things we might need to fix. Only time will tell if we feel comfortable enough to make that jump.

But in any event, sharing these salaries is a step in the right direction–it helps us to hold ourselves more accountable. I know for sure that it leaves us in a better position moving forward, and a step closer to being the company I’d want to work for myself.

Posted by
Jon Lay

Jon is a Partner at Hanno. He wears many hats, but his primary focus is on leading our engineering and technical operations.