Here’s the most utopian-sounding practice we’ve come across so far: setting your own salary. To many of us this sounds too good to be true. But believe it or not, more and more organizations adopt this practice and let their employees determine their own pay. But why would an organization do it? How does it work and what is needed? In this episode of our Rebellious Practices series we will explore the topic of setting your own salary. We collaborated with John de Koning, managing director at Incentro Marketing Technology, one of the companies on our Bucket List. John has gained a lot of practical knowledge after experimenting with the practice in his organization.
Why would you do it?
John de Koning: “At Incentro, we’ve embraced the ideas and vision on employee happiness from Ricardo Semler. We believe that if you make employee happiness the number one priority, clients will be happy and positive financial results will follow naturally. Most companies are still managing the other way around; they put financial and shareholder value in front (and manage pie charts and MS Excel sheets) instead of paying attention to their people.
One thing that stimulates happiness is empowerment. At Incentro, we take this very seriously. Step by step we’re taking empowerment and self management to the next level. We decided that employees should decide about the increase of their own salary for 2015.”
Other companies on our Bucket List have adopted this practice as well. Employees at Finext, BvdV, Semco, and Morning Star all set their own salaries. Among the reported benefits: higher levels of trust and engagement, increased entrepreneurship and a better understanding of the business.
How do you start?
John de Koning: “We started with an introduction evening on finance and general management. We showed everyone ‘how Incentro works as a company from A-Z’ and discussed several scenario’s, outcomes and their consequences. It was a very energetic session with a huge attendance (90%). After that, a survey was send to all employees with two questions:
- What salary percentage (raise) would you suggest for 2015 (in percentages)?
- What is the motivation of your choice?
We had a second evening to discuss the results.”
John de Koning: “What happened next was incredibly cool! Although the survey was anonymous, every single colleague explained his answer and motivation. Even those who wanted a huge raise (between 9-12%)! If necessary, a group discussion (about what’s best for myself, for us as a group and Incentro in general?) followed.
After these useful interactions, people had a chance to adjust their answer based on their new insights. Some lowered their percentage, others increased it. For us as the management team, that was the ultimate form of empowerment and self management!
So what about the percentage? In 2014 (before the experiment), salaries increased with 4,5%. At the end of the second session, there was a final percentage of 4,9%.
This is just a number. The side effects were even better:
- there is a great understanding of ‘how Incentro works’,
- employees feel even more empowered,
- and the happiness score has never been so high (measured by Great Place to Work® institute).
Nowadays, every ‘cell’ in our organization uses this practice. Employees jointly decide how much is invested in compensation; from salary to training and development. One ‘cell’ even uses a scoring system in which employees allocate individual compensation to each other. This ensures a high degree of self-management.”
The case of the AES Corporation
In our previous Rebellious Practice we explored the advice process with Dennis Bakke in his organization AES Corporation. They also experimented with employees setting their own salary, which is remarkably similar to John’s and Incentro’s experience. This is how he describes it:
“The most radical and possibly the most important AES compensation experiment was led by Pete Norgeot, a veteran plant manager and a protégé of Dave McMillen. First, the members of the group put together a plant budget that was consistent with their business plan. The budget had a line item for the total compensation expense for the entire staff. They decided that the total compensation paid to everyone in the plant could not exceed the budgeted number. A task force from the plant had already researched comparable pay levels in the area where the plant was located. That information was shared with everyone in the plant.
Each individual was asked to propose his or her own salary for the year ahead and then to send the proposal to every other person in the plant for comment. After a week long comment period, each person made a decision on his or her own compensation. When the amounts were tallied, the sum exceeded the budget, but not by much. As it turned out, only one person had settled on a pay level substantially higher than others of comparable responsibility, skill level, and experience had. He was also one of the few who had not followed the advice of colleagues to adjust his pay. After he was given this information, he agreed to reduce his proposed salary, and the revised compensation total allowed the plant to meet its original budget.
The individuals who participated in this approach were changed by the process. They had a much better understanding of how compensation affected the overall economics of the organization. They learned the value of seeking advice when they had to balance competing interests. They put the interests of other stakeholders on a par with or even ahead of their own. The process pulled team members together and helped some make transition from workers to business people. It made them “owners” of their business. For the first time, they understood what it meant to be stewards. This method of setting compensation was stressful, successful, and fun.”
(source: Joy at Work – Dennis Bakke)
What is needed?
John de Koning: “After the great results, I collected some practical tips for companies who would like to do the same:
- Give complete trust
If you give people unconditional trust they will act accordingly. The management team might be skeptical, because what if the employees decide on a 20% salary increase? My advice: don’t govern by fear. Because they were trusted, our employees handled it very well. If you have the courage to let go and give them trust, your people will use it in the right way.
- Make the decision-making process transparent
In order to make the right decision, people need the right information. Therefore, we invited everyone to first take a look inside Incentro as a company. We wanted the people who work daily at client sites to have a complete picture of how our business works. In that way, everyone understands the consequences of decisions for the company in general and knows how to make sensible choices in the interest of the business, rather than personal interest.”
Finext, one of the companies we visited earlier, also mentioned transparency to be an important condition. This increased peer pressure and made all employees accountable for the salaries they set. By doing this, they ensured nobody took advantage of the freedom to determine your own pay.
Try and fail, but don’t fail to try
Do you feel setting your own salary might help you and your team to improve the way you work and create a more engaged workplace? Give it a try and let us know how it goes. If you need any other tips or if you encounter any obstacles, let’s continue the conversation on our Corporate Rebels Slack Community. Subscribe to our open community and learn more about the powerful practice of setting your own salary.