As part of being a self-managing team, each shipmate is also able to choose their own salary.
We’ve done the research, analysed lots of examples about how self-managed salaries have been done successfully in the past, and we think we’ve come up with a fairly robust way of doing them.
The salary change process
It might seem a little bit complex at first, but in reality, it’s far simpler than either a perfect formula which encompasses all possible variables or an opaque, politicised negotiation and secret list of team salaries:
- Along with regular State-of-Play updates to the team, we also include a financial advisory on the current company financial status, with a general opinion and recommendation for the salary direction that the team should be thinking about for this upcoming review, based on our financial status. That’s not an instruction, but rather, an informed opinion–under the principles of self-management that we’re moving towards, people are free to make their own decision, taking our opinion into account (and disregarding it if they choose)
- The team react to this guidance with a round of feedback and opinions. Some might even disagree with the assessment and call us out on that. Some might request more information or clarifications. We'll do our best to provide that.
- Shipmates take time to think about the finances and their own salary needs. They can ask for advice or opinions from others while they’re putting together this proposal, and we’re suggested taking into account a few factors when working out a figure - those are listed below.
- The shipmate puts together a proposal, in whatever format they choose, for how much they want to receive in the next few months. It’s recommended that they explain their thought process in sufficient detail, especially if it’s an increase since the last salary review because this will make it easier for their shipmates to understand their thinking and motivations. They post this on Loomio.
- Just as the team reacted to the general salary proposal, now we have a reaction round from the team to this individual shipmate’s salary proposal. This isn’t a battle: it’s a conversation, and the shipmate is obliged to listen to the feedback from the team.
- Shipmates are free to modify their salary proposal based on that feedback, but they don’t have to do so if they disagree with the advice. That’s the power which comes along with self-management! This idea of listening to opinions, but not being obliged to follow them if you strongly believe otherwise, is part of what we call our Advisory Process, which we’re documenting at the moment and trialling as we shift to become a teal-thinking organisation.
- Under the Advisory Process, there is 1 core ground for a salary proposal being declined: if there is a genuine risk that the salary being proposed would cause irreparable harm, or move Hanno backwards.
- Pay for every member of the team is documented in a spreadsheet for everyone to see and refer to, along with the forecasted upcoming payments to the whole team, so that we can accurately plan our outgoing costs for the next 3 months.
Questions to ask when deciding on a salary figure
We have shifted away from an individualistic, subjective approach to salary APs and the primary consideration when making an AP is what is my value to Hanno?
We found it necessary to make this shift in financially challenging times because we needed to make sure that salaries were linked to business value, not just an emotional justification.
After business value, a few other secondary factor questions tend to play a role in team compensation:
- How much do I need to earn, in order to live and to be satisfied with my pay?
- How do the next 3-6 months look for me? Thinking about longer periods should help to discourage big swings in compensation, which will make it hard to budget.
- How much can Hanno afford to pay? The whole team has access to our financial dashboard and budgeting dashboard hosted by Float, which uses the live financial data from our Xero account. So there’s total transparency to how much money the company is making and spending, which is critical for this whole process to work.
- How much do my fellow shipmates earn? We have a spreadsheet which lists how much everyone in the team has been paid each month, this year.
- How much do other people in my city/country earn?
- How much do people with my skills and responsibilities earn elsewhere?
A note on retrospective salary increases
This is very much related to our AP rules banning retroactive proposals.
If we know we upcoming outgoings of £200k in the next 3 months, we'll plan our finances and outgoing around this to ensure we have financial stability.
When someone proposes a salary increase, it's considered by the team based on the financial status of Hanno. If it involves an increase of $1000/month, we'll bake that into our financial road map if the AP is approved.
Being able to plan effectively depends on having a clear view of those obligations.
If someone is to present a proposal to say "I think I deserve more money for my work in the past year and I now want to claim 12 months of backdated pay, totalling $12,000, this creates an immediate, unplanned financial hit to the team.
So the presumption with salary proposals is that while you're welcome to request a salary increase for the future, you can't retroactively increase your salary for work done in the past.
We've blogged about this process in the past as we developed the process. You might want to read through those articles for more context on the process:
- Here’s why our team now chooses their own salaries (June 2015)
- Here’s why I revealed all of our team salaries (September 2014)