At Freitag: "We Have Radically Simplified Our Salary Scales"

Pascal, you introduced a new salary system for Freitag in 2019. What are the main features?

First, we radically simplified pay grades. We used to have 17 salary levels—now we have only 4. They are based on roles that someone fulfils. We have been working according to holacratic principles since 2016. In addition, ranges within the salary levels are now transparent, and all employees will receive a variable, EBIT-based profit-sharing for the first time in 2019.

What was the driver for you to change salary structure?

We have long been aware we needed to change the compensation system. We grew organically, as did our payment system. At some point we had an enormous number of levels - from interns to juniors to specialists to seniors and team leaders. Everyone negotiated for themselves, and it was not always clear what the principles of a pay rise would be. In the end, decisions depended a lot on the respective bosses. Sometimes employees were disproportionately well paid when they joined the company, and earned too much in relation to the overall structure.

When we started changing the organization about four years ago, the desire for transparency was apparent. So, we set up an interdisciplinary team to address the issue of wage transparency. After a short time, it was hopelessly divided. So, we started pragmatically and first adjusted the overall structure. Then we continuously increased the salaries of those who were earning too little.

How much have you changed your organization or the way you work over time?

We first set up our organization along the lines of a city we called "Beta". The idea behind it? We wanted to remain as productive and agile as a small organization, despite the fact our company already had 150 employees. We abolished management structures and introduced self-organized cells with leaders who should see themselves as coaches. The city was a beautiful picture, but we failed magnificently.

Why, what was the problem?

The initial energy for transformation quickly evaporated, probably because we as former management did not stand united behind the further development. It was also unclear what rules we wanted to follow in our development. Key questions remained unanswered, like: What does a career look like in our organization? Everyone tries to fit in somewhere, and wants to get ahead or a better-sounding title. At some point we came across holacracy and decided to adopt this new form of organization. We have completely freed ourselves from the classic career ladder, and there are no longer any hierarchical names for positions. Meetings are more efficient now, thanks to clear rules. But, in retrospect, the "Beta" organization was absolutely valuable as a development step. To directly shift from a traditional organization to holacracy would have been much more demanding.

How is this now reflected in your salaries - for example, what are you paid for?

I have a broad potpourri of tasks, but at the core it comes down to four roles. I am the lead link for HR and organizational development - that is an organizing function. I also act as a kind of organizational developer. As a cultural coach, I am responsible for communicating values globally, and in the role of creative director, I am responsible for brand identity of the company in the General Company Circle. Other roles come up from time to time, but then they also come to rest.

We have assigned each role to one of 4 salary levels. The decisive factor for salary is the level in which the majority of a person's roles are located. These levels differ according to their complexity, range of responsibilities, and whether the work is more executive or strategic.

Other important factors are experience and, of course, social behaviour. In principle, salaries should be comparable in the same role. If someone brings special experience, stands out as a leader and passes on his or her knowledge to others, this can also impact their salary. Therefore, we have defined a catalogue of competencies that are evaluated by role.

Who decides which role is in which salary level and rates the skills someone brings to it?

There are two roles that decide that. On the one hand, are the lead links of the circles: This role is responsible for defining a basic structure for the circle so that it can fulfil its purpose. The lead link must find suitable people for the roles of the circle and ultimately assess how well someone fulfils his or her role - this is what we call "role fit". The second important role in the grading process is called "Moneypenny": This is the HR role responsible for our salary system, and acts as a sparring partner for the lead links to help to correctly assign roles to the salary levels.

That sounds like a more classic top-down process...

We are still on the way from a classic organization to a form of self-organization. We do not want to end up as many organizations do, with a leader who judges once a year how someone has performed in his or her job without really knowing anything about it. This is why we introduced the "Circle Review", in which all members of a circle sit down together and evaluate each other.

How does this work exactly?

First, each person writes a post-it for each role in the circle and notes how important they think the role is and how much energy they put into it - on a scale of 1 to 3. For example, if someone is involved in social media, this could be the highest importance with 3, but the energy might only be at 1 because the person has many other things to do. This is a guide for the others as to how colleagues are currently dividing up the workload.

Then a so-called "feedback market" starts. Everyone goes around giving feedback on post-it notes about the roles of the others. This should be constructive and honest. In an open round, each person takes up their feedback and reflects on what it evokes in them. Questions or short discussions are also possible. The point is to say the things, even controversial things, that can get lost in everyday life. A round follows in which each person receives at least two appreciative comments from the circle. In the final check-out, everyone openly reflects on how the session went. We are now in our second year of this process. The Circle Review has become an important instrument for circles to exchange ideas and develop further. And for the lead links it provides a basis for evaluating the role fit of circle members.

What kind of dynamic does this set off among colleagues? Doesn't it influence the honesty of the feedback, if it is ultimately decisive for the compensation?

I don't see any danger of that with us. On the one hand, team feedback is only decisive for salary to a small extent. On the other hand, our feedback culture is already very advanced due to holacracy. We are used to bringing tension to the agenda and addressing it openly. We experience it very positively when someone says: "You two have a problem. This is exhausting and I cannot work with you like this. Please talk it out." Plus, nobody works here to just make a lot of money. Many join us because here you can help shape things and have inspiring colleagues. This might sound pathetic, but it's certainly the case for me: I've been working here for ten years and I don't want to leave.

What does the Freitag culture consist of in your opinion?

We are driven by sustainability thinking, even if we don't use that as a term. We not only think about how to design convincing bags, clothes and services, but also about the social and societal impact we can have as a bag manufacturer. This includes not only how to use material resources wisely, but also how we want to work together. Trust, appreciation, eye level exchange and fun at work, all these shape our culture. Holacracy brings these values more the fore. And they transmit security. As a result, people have a greater enthusiasm for change.

To what extent does this also apply to your colleagues in production?

Of course, the main values differ from employee to employee. For example, our longest serving employee in production has been here for 20 years. He came from the Balkans, and this was his first permanent job. Today he is our silverback: he likes to pass on his experience. He is perhaps not as much influenced by sustainability thinking as others, but he has found a home in the social framework of the company. So, everyone has his or her own story. Not everything here is perfect either, in that everyone is happy and wants to save the world. That would be misleading. But it comes close.

How important is it for you that salaries are in line with the market?

I find that difficult, because the market does not necessarily reflect what we want to achieve. In communication and sales, in average paid fields - maybe you can use this as a benchmark. But we have many jobs that don't exist elsewhere, both in production and at strategy level. And what is paid for at top levels in the market is, in part, madness. All those millions in salaries? Nobody can be worth that. That shows how rotten the compensation system can be. Our highest salary is about four times the lowest.

What are the next steps for your compensation system, and a self-directed organization?

We still have a lot to learn and unlearn. While former bosses are passing on control, employees are experiencing that they can no longer leave everything to the managers. The fact that we all share in the company's success was therefore a logical step for us, and one we celebrated very much. We introduced a parameter based on profitability. If EBIT exceeds a certain level, 20 percent is distributed to everyone.

Does this apply equally to all employees - including sales?

70 percent of the distribution depends on the basic salary. 20 percent is the same for everyone, and 10 percent is determined collectively by all of us as to what we want to use or donate it for. The same applies to sales - there is no bonus. This practice has never made sense to me. Someone produces the goods, others communicate about them, and still others sell them. Why should one profit from a salary variable only in sales? Everything else is equally important.

How fair is your compensation system today from your point of view?

We have transparent salary levels and you can calculate roughly how much someone earns. The process is also transparent. And an independent certification organisation (HR Conscience, cooperation partner of the Swiss Federal Office for Gender Equality (EBG), editor's note) has just confirmed that we pay equal salaries for work of equal value. Our compensation system is therefore fairer than ever. But that is not the end of the story.

With Corona the cards were reshuffled in many organisations. Has this changed anything in your compensation policy?

No, nothing has changed in that regard so far. But the tense economic situation is also a challenge for us. All F-Workers have been informed about this, and we have left it up to them to choose the time of payment of the salary variables. Most have chosen to receive them later.

Interview: Stefanie Hornung. This guest blog is a translation from German. The original interview was published on the New Pay Blog.