Transparent Salaries: How Solving Tough Issues Together Builds Trust
Something was wrong with our reward structure. By late 2016, the signals were loud and clear. These, plus a (comparatively) low score in the Great Place to Work survey, led us to adopt the Kaizen ‘salary’ approach in April, 2017. A project team consisting of one partner and one employee was formed to solve this issues.
Here, we share how the team operated, and the challenges we encountered.
Step 1. Measure the problem
The first step was to measure the problem. We asked everyone in the organisation to rank us on two criteria:
- satisfaction with their salary, and
- satisfaction with the performance evaluation system and the accompanying opportunities for salary increase.
What did we learn? There was more dissatisfaction with performance evaluation than with salaries. To bring the problem into focus, we mailed everyone’s salaries to each employee. That had a big impact! In retrospect, we could have done this more tactfully.
A positive was that people sharpened their answers to our questions. A negative was that we woke some ‘sleeping dogs’ (as they labelled themselves). They had been satisfied with their salaries until they saw the differences with their colleagues.
One day in late April, we all stood in a big circle and tried agree on a respectful resolution. That turned out to be a struggle, and emotions ran high. Afterwards, not everyone was proud of the things they said that day. But, for the project team, this put things into perspective by revealing the importance of the subject.
Despite all the emotion, our goal was straightforward. We wanted to improve satisfaction levels for both salary and performance evaluation. Our goal was to reach an 8 for both of them—which were presently 5.4 for evaluation and 6.8 for salary.
At the time we had no clue how to get there. But we did know we had to eliminate most of the low grades. This was a goal the project team set itself: nobody should be given failing grades after a project is finished.
Step 2. Identify the main triggers
The next step was to identify the key triggers for low grades. We identified three:
- Our existing system increased inequality: higher salaries got larger increases.
- Our evaluation process was subjective, and not transparent.
- There was no automatic correction for inflation.
We had two rounds of discussion to dive deeper into these triggers. We discovered we needed to set out principles that a solution would adhere to. We agreed on three:
- “Only intrinsically motivated people work at LCG and those are the people we hire.”
- “We will only use objective criteria to determine salary levels and growth.”
- “We want to reward peers equally.”
One key conclusion was that we wanted a system where you don’t receive a bigger salary increase just because you put in more effort. After all, the measure of effort is subjective—and we didn’t believe such an incentive would lead to better results.
Step 3. Redefine proposals
We asked all employees to record a short movie in which they gave their reaction to the listed principles and their consequences. It was quite emotional when we shared them during our team day.
There appeared to be enough support to continue. Then we invited invite two other employees to suggest what might be objective criteria for determining salary levels and growth.
This produced our first concrete proposal. Salary and increments would be determined by the number of years of work experience. In other words: we wanted to go to a single salary curve for everyone; one where you knew exactly what you would earn when, and that this should be the basis on which new people are hired.
Since work experience isn’t an objective criterion, the group worked—via a number of objection rounds—toward a table in which we assign every type of experience a number of points. This way anyyone could take their CV and, using the table, calculate a score.
After working out the practical problems, we realized this would cost us more then expected. A partner said: “Yes, a solution can cost us some extra in the coming years, but not more than an average of 25.000 euro per year, for the next five years.”
This was the prelude to the most exciting chapter! This is what happened:
June 28: Second proposal (no agreement)
After a couple weeks of calculations a new proposal was made which everyone agreed with. At least, that’s what it looked like. But, two days before the deadline, a colleague raised an objection.
The proposal would reduce the gap between peers, but not eliminate it. She indicated this was unfair in her eyes and she could not agree to it.
The project team agreed that we only wanted to implement something that received no objections. And if a person objects, this person is asked to work with them to find a new proposal.
July 14: Third proposal (no agreement)
The colleague that raised the objection booted up Excel and came up with a counter-proposal. The counter-proposal ensured that differences between peers disappeared. However, this would mean faster growth for one colleague and slower growth for others.
For a few, this meant the new proposal was worse than the one they saw on June 28th. The project team sat down with this group to explain the new proposal and the consequences it would have for them.
It was a tough pill to swallow, but all of them agreed, except one. On the last evening just before closing time, an e-mail with the objection came in. The colleague in question was in tears and the project team defeated.
October 6: Fourth proposal (no agreement)
The day after, the project team immediately sat down to find a new perspective. Where the previous objection resulted in a guarantee that the new salary system would be completely fair (everyone with the same work experience is rewarded equally), this objection resulted in the State-of-LCG day, because there was still one factor we hadn’t addressed—inflation. That became more significant now, because limited salary growth might be fine when you make a good living, but less attractive when inflation reduces it.
So we now set out to select a yearly calibration moment: the State-of-LCG day. On this day we look at how well LCG is doing financially, and what this means for its salary plans. If things are going well, the salary curve can possibly be increased.
October 31: Fifth proposal (agreement)
After working out a few other practical issues and objections, an e-mail went to the entire organization on October 31st with the final, adjusted and accepted proposal.
But for the project team (and for the entire organisation, really) the most thrilling part was still to come. We had agreed on the solution, but was it better than the old system? To find out, we asked all colleagues to grade their salary and the new system, once more.
Tada! The results? Satisfaction with salary went up from 6.8 to 7.9, while satisfaction with salary growth went up from 5.4 to 8.3!
What did we learn?
Finally, we analysed the process. How had it gone? Everyone could suggest improvements. We regard these as lessons learned for the next complicated improvement project. That will undoubtedly happen.
We concluded with an open stage where everyone who wanted to could share their story. The project team was applauded, and we are moving on to the next Great Place To Work in terms of fair salaries. We are looking forward to it!
This guest blog is written by Martijn van Laak. Martijn is co-owner of the Lean Consultancy Group (LCG), a Dutch consultancy firm frequently awarded as one of the Best Workplaces in The Netherlands according to Great Place to Work. You can find Martijn on LinkedIn.
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Hi Martijn - great article and thanks for sharing your experience of tackling reward at LCG! I was really impressed with the courage demonstrated in addressing a very sensitive issue, and what must have been some pretty emotionally charged conversations - nice work! One thing i was surprised at was the agreement that people would get rewarded on tenure - the longer serving and more experienced people would be rewarded more for that - or did i get that wrong? This surprised me because i have spent some time dismantling remuneration systems based on tenure for the exact reason you are employing one - it was seen as unfair and not representative of how much value or performance someone may bring! (stories of long term employees being uncommitted). So I am just wondering how this conclusion was arrived at? Either way, it sounds a great process you have been through, and each organisation has to find its own reward system that works for their culture and environment, so all kudos to you for co-creating that.
Hi Martijn - yes agree great article. I am probably thinking along the same lines as Pete. Through experience I have found that the people who have been in a position/organisation a long time may not necessarily be the best performers in their area of expertise. Fresh eyes can sometimes bring a wealth of knowledge and change to an organisation. Having said that at my organisation we do currently pay based on position and length of tenure in that position and as per LCG we are currently going through a lot of change. Having said that I can see flaws in our current practice based on performance i.e. you get rewarded whether you are performing well or not performing. I was interested in the timeframe it took to reach agreement between June 28 and October 31 and whether you had a higher turnover of colleagues during that period? Thanks for sharing your journey.
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In a previous post on Haier's RenDanHeYi forum in Shanghai we shared which speakers we were looking forward to, hoping they would provide “Management Fireworks”. Last year we were hosting the forum, but this year we could sit back and listen. Now it’s time to share with you. So, strap in and enjoy!