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Upside-down thinking: Should employees set their own salaries?

Key takeaways
  • Enabling self-setting of salaries can enhance talent acquisition, engagement, and productivity.

  • Self-setting of pay and rewards won’t work unless there is a culture of trust and transparency.

  • Salary is a subject that many people find difficult to talk about, so the process for self-setting pay needs guidance and support.

  • Salary self-setting may need to be adapted to organisational growth.

  • Allowing employees to set their own pay and rewards can incur potential legal implications.

  • Autonomy over annual leave is a popular perk that relies on trust and good communication.

  • Self-setting salaries can pose risks to a business and its culture.

 

‘How much do you think you are worth?’ It’s a question that employers generally don’t like to ask, and that employees are equally reticent to answer. Setting a salary may be a negotiation, but it’s an exceptional circumstance where that negotiation is led by the employee. And yet, in the spirit of the current workplace revolution and the arrival of new ways of working, several companies have taken the unusual step of allowing their employees to decide what they are worth and set their own salary, literally paying themselves what they want and reviewing it when they feel it is justified.

The conventional setting of salaries and reward has long been cloaked in secrecy, with the details of how compensation is determined and how much everyone in the organisation gets paid known only to managers and leaders. This taboo around pay is often a source of frustration and pay dissatisfaction and a regular cause of employee disengagement.

A growing number of businesses have countered this by embracing transparency and making their salary information open to everyone. Tech firm Buffer was one of the first to publish every employee’s salary online to ensure fairness, including gender parity. Some firms have taken transparency a stage further, conferring a level of autonomy on their staff that allows them to set their own pay and choose their own company perks.

Is this an old-news revolution?

As radical as it sounds, it is not a new trend. Employees at Brazilian company Semco were setting their own pay levels in the 1980s after Ricardo Semler took over his father’s manufacturing firm and transformed it into a collaborative business where staff took charge of various issues normally left to managers. When some employees expressed unhappiness with their level of pay, they were invited to set their own. Far from being disastrous, the move reduced staff turnover and boosted the firm's fortunes. He subsequently wrote The Seven-Day Weekend about his experiences.


Companies such as BvdV, Finext, and Morning Star have emulated this model for several years. More recently the trend has been adopted by several small companies, mainly in the tech sector, with largely positive results.

It isn’t an option for every business. In larger organisations with multiple levels of employees, it would be complex and difficult to manage. Success also depends on a culture of trust and a level of transparency that not all companies can operate.

Done well, allowing staff to decide their own pay and reward can be a talent magnet, and a driver of engagement and performance. However, without guidance and support for employees in managing their newfound freedoms, this upside-down management approach to compensation could ultimately prove damaging for the business.

What do people who have tried it say?
  1. It’s a huge help in attracting the best talent: Pim de Morree, cofounder of blog turned training company and consultancy Corporate Rebels, has spent the last few years interviewing progressive businesses and describes salary self-setting as one of the most advanced ways of bringing employees into the business. He says: “By giving people the autonomy and trust to set their own salary you treat them as full entrepreneurs and owners of the business. Done well, this can boost engagement and ownership, as some of the pioneers we’ve visited have shown. However, the strategy will only succeed in companies that have already established very high levels of trust and autonomy. Without that, it will not work and could potentially harm your business.”

  2. Transparency is key: Staff at healthcare consultancy Kaleidoscope and Care set their own salaries and these are reviewed every six months, based on the guiding principle that Kaleidoscope’s highest salary cannot exceed four times its lowest. Staff must give a reason for their review decision, and all salaries are transparent and visible to everyone in the company. Kaleidoscope’s Jess Tudor-Williams says: “We believe that a transparent salary process is one way of reducing discrimination in the work place. It also builds a culture of trust and reciprocity; we have good conversations about our performance, expectations and hold each other accountable.” “Some staff are more comfortable with the process than others; people need support,” says Tudor-Williams. Also, people externally can misinterpret staff setting their own salary as us being some sort of fluffy utopia. The truth is that we have high expectations.”

  3. You can let employees set each other’s pay: At Dutch marketing and IT firm Keytoe colleagues use an app to decide each other’s salary. The salary budget is determined each month and is based on a simple equation: business revenue minus costs equals the salary budget, which is then divided among the workforce, based on the ratings that people have received. Is it a fair system? Being judged on how your colleagues feel you are doing is considered by the firm to be as close to fair as it could get.

  4. There are potential legal traps to avoid: As Nicola Clarke, Senior Associate in the employment team at Glasyers ETL, explains. “It could potentially result in a disparity in pay between men and women for carrying out equal work. If there is little or no organisational control over this to bring it in line, equal pay issues could potentially arise.” An employer could also be at risk of a discrimination claim if the practice of allowing staff to set their own pay and rewards is not extended equally to all employees, and therefore had the effect of disadvantaging particular groups. “For example, women or younger employees might generally undervalue their role in the business and decide their own pay at a lower rate,” says Clarke. “Employers looking to adopt this practice should have clear policies in place for the management of the system and ensure that a level of control remains with the employer.”

  5. There are also cultural risks to playing with pay: Pay can be a major reason for dissatisfaction in the workplace, says Colin Lamb, founder of leadership consultancy Connect Three. “If you start to mess around with pay then this can have a huge impact on the workforce and could significantly damage productivity,” he says. “It could create the wrong working culture, a culture of competition instead of collaboration, which may suit some business models, but is what most businesses are trying to move away from. It could also result in people leaving if they become demotivated or feel undervalued in relation to others.”

  6. Try letting staff set their own benefits instead: If pay can be a “third rail” issue in some organisations, why not start by allowing more flexibility with benefits? US tech firms have been offering unlimited annual leave since the mid-1990s. Tech firm Remote offers unlimited PTO to its 600 people globally. Employees are asked to take a minimum of 20 days annual personal leave, and line managers monitor this and communicate when they notice someone is taking too little. “Beyond that, we don’t keep count,” says VP of People Nadia Vatalidis. “Productivity and results are what matters, and you get this through having a motivated, positive workforce, not by hours spent at a desk. We trust our employees with trust, and through our company value of Ownership, we expect everyone to remain people-centric too, and ensure that their colleagues can also take sufficient time off.”

And so…

As with any attempt to rejuvenate or reinvigorate a company's approach to managing people and the employee experience, it has to resonate and fit with the culture and be practical. A company with an established hierarchy and well set norms of behaviour around pay rises and promotions may find it hard to sweep all that away. There is no reason to simply adopt a trendy cause or fad that has worked elsewhere for the sake of it. But well thought through, and in a culture built on trust and transparency - and possibly at the early stages of a company - employee-led reward might just be the factor that helps you attract the talent you need.