Reinventing Salary Models: How Self-Managing Organizations Handle This Touchy Subject

Why did we do it?

Because we couldn't ignore the flood of questions we received about salary models in SMOs. It seems that once a company starts or transitions into an autonomous work environment, the issue of salaries inevitably comes up.

Whether it's because everything else is fully transparent except salaries, or founders initially setting salaries for a small team that eventually grows—making it impossible to manage without broader input—this topic is always bound to surface. It appears that discussing and reevaluating salaries is becoming an essential step in embracing a truly self-managed structure.

4 Distinct Approaches

Throughout the research and case studies explored in this course, we've identified 4 approaches to salary models within SMOs. These models not only determine how individuals are compensated but also mirror the core principles and values embedded in the organizational culture. Here are the four approaches:

• Peer-based: In this model, peers within the organization collectively determine an individual's salary based on factors such as collaboration level, responsibilities undertaken, and demonstrated skills.

• Role-based: Employees receive a high base salary, supplemented by additional rewards such as profit-sharing or shares in the company. This approach aligns compensation with the significance of the employee's role within the organization and encourages long-term commitment and performance.

• Performance-based: Employees receive a lower base salary but have the opportunity to earn additional pay based on their individual performance. This model motivates employees to excel in their roles and rewards high achievers accordingly.

• Self-set: Individuals have the autonomy to set their own salaries, with input and feedback from peers. This approach empowers employees to determine their worth within the organization based on their skills, contributions, and market value, promoting a sense of ownership and accountability.

These models aren’t rigid; there’s often overlap and room for customization. But they give a good snapshot of how salary models are evolving in self-managing organizations.

So, what were some of the key takeaways?

Takeaway #1: Ensure you're ready to open up this topic

Tackling salary models is no easy task, especially in self-managed teams. Whether you're new to self-management or have been at it for a while, it's crucial to assess if your team is ready for this discussion. Consider whether your workplace fosters a psychologically safe environment. Is there open communication and collaboration to support these tough conversations? Do employees have the financial knowledge necessary to fully understand and engage in meaningful discussions?

In 2009, four Agile enthusiasts in Argentina, inspired by Ricardo Semler's Maverick approach, founded 10Pines. Their goal was to bridge the gap between software development and management by embracing Agile methodologies and drawing inspiration from Semler and sociocracy.

As Jorge Silva from 10Pines puts it, "You have to use it with a lot of other practices, and it needs a lot of other practices." In other words, successful implementation of a new salary model requires not only readiness but also a strong commitment to self-managed principles. These practices are essential both as a prerequisite and as an ongoing part of building a fair and transparent compensation system.

Takeaway #2: Engage in meaningful discussions

Before making any changes to salary structures, it's crucial to engage in meaningful discussions about money and values. The Open Collective Foundation (OCF), founded in 2019, provides a compelling case study in this area. As a US-based organization, OCF offered essential administrative support, fundraising tools, and assistance with securing nonprofit status for grassroots groups. Guided by the principle of solidarity, they created a salary model that reflects a deep commitment to transparency and equity.

Mike Strode from OCF emphasizes the importance of these discussions: "Before you get there, you have to talk about team values and have conversations about money. It's essential to explore our feelings on money, value, and the relationship to the work we are doing or aspire to do." Engaging in these conversations helps ensure that the salary model aligns with the team's principles and prepares everyone for transparent and equitable compensation. This approach fosters a strong foundation of trust and understanding, making it easier to implement a fair and cohesive compensation system.

Takeaway #3: Collaborate and iterate

Involve your team throughout the entire process of developing a salary model. Collaboration is essential for creating a fair and effective system, which means gathering feedback, testing ideas, and refining your approach based on collective input.

Indaero, a company with over 50 years in the aerospace and medical sectors, exemplifies this approach. With 40 employees and clients like Airbus, Indaero has a long-standing history of designing and manufacturing specialized equipment.

Dunia Reverter, a seasoned leader in NER transformations, led a significant shift within the company. She emphasizes the power of co-creation: "Co-creation enables the organization to consider diverse perspectives, understand employee concerns, and work towards solutions that are acceptable to all parties involved."

By involving everyone in the process, you create a culture of continuous improvement. This inclusive approach not only addresses a broader range of issues but also fosters a sense of ownership and alignment within the organization. Avoid top-down decisions and instead, encourage open dialogue to ensure all voices are heard. This iterative process allows for ongoing adaptation based on feedback, ultimately leading to a more effective and inclusive salary model.

Takeaway #4: Consider if you’re ready for full transparency

Decide if full salary transparency aligns with your organization’s values and needs. While some companies might be ready to embrace full transparency, others may prefer a more gradual approach. It’s crucial to gauge your team’s comfort level and readiness before making such a significant change.

Mindera, a global software company operating in locations like Portugal, the United Kingdom, and the United States, exemplifies a thoughtful approach to this challenge. Founded in 2014 with principles like Care, Autonomy, Collaboration, and Agility, Mindera prioritizes a culture driven by happiness and excellence. Luis Alberto Simões, a Self-Organisation Enthusiast at Mindera, shares their experience: "There was a discussion about whether we should have open salaries or not. Since some people were uncomfortable with full transparency, we decided not to impose it. Instead, we created what we call the open salaries group. If you choose to share your salary within that group, you can see the salaries of everyone else who has opted in. This approach respects individual preferences while still promoting a degree of transparency."

This example shows that full transparency doesn’t have to be an all-or-nothing decision. By starting with voluntary transparency, organizations can respect individual preferences and expand transparency as the culture and comfort level evolve.

Takeaway #5: Don’t copy and paste

Yeah, yeah, yeah, we hear this all the time. But it’s true. Each of the 10 models we studied took inspiration from different sources but ultimately created a unique model that aligned with their organization's culture and values.

While there are guaranteed challenges and difficulties—and moments where you might want to turn around and ditch the whole thing—sticking with the process will be worth it in the end. Customizing your approach ensures that the salary model truly fits your team's unique dynamics, leading to a more authentic and effective system. Remember, it's about finding what works best for your organization, not just following a blueprint.

So there you have it!

I’ve only scratched the surface here, but I hope this gives you some inspiration if you’re considering reassessing the salary process in your organization.

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