Saturday, January 3, 2009

Salaries in an Open Culture Organization

I think that if you have an organization of empowered self-organized smart employees then, you should consider having:

  • Open Salaries: Any employee can know any other employee’s salary. Disclosing salaries is not a crime

  • Salary increments/upraisals are not based on individual performance. We want to build an organization where everyone is equal and everyone is putting in their best. If not, then they are in the wrong place. It would be even better if everyone is contributing (net value) more or less the same. (Common to find this in 4-5 people start-ups)

  • Team members sit down and mutually decide their salaries (the numbers can be further adjusted based on cross-team discussions)

  • Every month the company discloses its Profit and Loss (P&L) statement for the month. Even better if you can automate this and we can see the trend.

  • Based on the P&L, employees can get a % increase or decrease in their monthly pay. (can be easily automated)

    • Say the company made 20% profit (2,000K USD) this month.

    • Last month the company had made 15% profit (1,500K USD).

    • So the delta is 5% (500K USD).

    • Now the company decides that some portion of this 5% should either be distributed amongst the employees or used to buy an asset for the company that will directly benefit all the employees (say Mac Book Pro for all employees).

    • Say the company decides to distribute 20% (100k USD) of the 5% profit delta (500K USD) amongst all it’s employees.

    • We distribute this amount (100K USD) to all the employees.

      • One way to do this is such that every one gets the same portion/increment. You can divide the total distributable profit amount (100K USD) by the total number of employees (say 100) which would be 1K USD amongst all its employees. So every one get 100 USD.

      • Another way to do this is instead of everyone getting the same increment, employees get the increment based on some % of their salary. So for example 100k USD needs to be distributed amongst 100 employees whose total salary comes up to 50K USD. Then everyone gets 2% (100K/50K) of their current salary increment. So if someone’s salary was 5k USD per month, then their new salary will be 5.1k USD.

  • Some organization might feel doing it every month is too much overhead. May be they want to batch it up and do it once every 6 months. This is fine, except that doing it every month is a great way for all the employees to be hooked into the companies performance.

  • Salary corrections because of market changes or other reasons are done on a regular basis but are separated from the salary upraisals.

The standard response I get to this proposal in companies from the management is that

“Employees are not matured enough to handle this in the right spirit”.

My response is

“You can’t learn how to swim by standing outside water and watching others swim, you have to jump in and try”.

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