Lean und Kanban: The Salary Dilemma

Monday, December 22, 2014

The Salary Dilemma

The last couple of months my colleagues and I have been evaluating different alternatives for „Personalverantwortung“ (I’ve asked several native English speakers and it seems like there is no appropriate translation, so I will use the German term).

We’ve talked about what exactly we mean by referring to Personalverantwortung at Jimdo and we came up with seven different elements. One of these elements is, obviously, remuneration. People want to get salaries, and there needs to be some kind of mechanism in place to decide upon the salary level. The „traditional“ mechanism for doing this is some kind of line manager who does (mostly annual) performance reviews with individual salary negotiations. Perhaps that’s the best (or the least bad) solution in many contexts, but as I mentioned, we wanted to evaluate other options. So what we did was 1) read different articles on this topic (eg [1],[2],[3]), 2) talk to a lot of our teams about this topic. The conversations were very insightful in many different respects. What I found most interesting was a thought that was expressed in almost every conversation. It goes like this:

„The person/group who decides on my salary need to be very close to me, so that they can evaluate the quality of my work. At the same time this person/group cannot be on my team, because my behaviour towards this person/group will be different as soon as he/she sets my salary. Oh wait a minute...“

This is what I call the salary dilemma: Whoever decides on the salary of a person needs to be close and not close to this person at the same time.

A line manager has to deal with exactly this problem: He/she is supposed to evaluate people. In most cases he/she is either very close to the team and therefore might cause disfunctional behavior (eg people not asking for help when their annual review is close) or he/she is far enough from the team to avoid this kind of disfunction. But then the remuneration will most likely become very similar to roulette („Haven’t heard anything bad about you. What about a 3% raise?“) Both options don’t look very promising. I am not saying that it’s impossible to find a good balance, and I have seen very good managers doing a great job in creating a high-trust environment with their teams. But I believe it’s very challenging.

Of course we can replace the line manager with a different person or some kind of committee, eg a peer group. This might be better in some respect, but the dilemma stays in place.

I am aware that there are many very different models for renumeration like self-selected salaries, uniform salaries, salary formulas etc. And we’ve been thinking about ways to avoid or minimize the effects of the salary dilemma. At this point we are close to run a couple of experiments to learn more about not only remuneration, but the whole topic of Personalverantwortung. I might blog about this (and all the other insighst I’ve had so far) later.

But for now I am asking for your input:

How do you deal with the salary dilemma?

Please leave a comment or send me an email to arne[døt]roock[ät]jimdo[døt]com

P.S. I would like to thank all the smart people with whom I’ve had the opportunity to discuss this topic: Not only my great colleagues from Jimdo, but also Russell Healy, Simon Marcus, and Jim Benson. You guys rock!

References

[1] Open Salaries at Buffer

[2] Merit Money

[3] How salaries, career progression and reviews work in a #NoManager company

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Like this post? Then you should check out my previous post Stop bashing managers! and one of my newer posts Radical Transparency?

13 comments:

UnknownDecember 22, 2014 at 1:08 PM
It''s all about "trust". I'm one of those line managers who are very close to the team - we're in the same room, we talk to each other every day (at least during standups in front of our kanban board). They know that they don't get a penalty for "asking questions" (there's nothing worse a line manager can do). They know my definition of "making progress throughout the year" very well, and they know that I decide (or argue for) a salary increase, if they meet my expectations. Of course it's also necessary to give feedback (regularly, but not necessarily formal) throughout the year.
If you have "trust" as team value, it's getting quite easy - and "transparency" and "reliability" are huge parts of building trust. Line Manager or not, become a "real" part of the team.
Of course it's getting hard, if your have "Personalverantwortung" for ~15+ employees. But that's another story - it's virtually impossible to develop (I don't like "manage") that amount of teammates.
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CorinnaDecember 22, 2014 at 1:56 PM
I used to be in a similar position (didn't set the base salary, but raises), complete with the performance reviews that come along with them. I hated it. Frequent feedback? Good! Scheduled 1-on-1s? Great! Regular performance review? Barf! Studies show it's bad for motivation and my experience matches that.

That being said, I'm a fan of standardized tiers as promoted by Joel Spolsky:
http://www.joelonsoftware.com/articles/fog0000000038.html
This takes care of perceived unfairness, gender pay gap and self-promoters vs. introverts.

I haven't been in an environment that uses it, though...
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sery0gaDecember 23, 2014 at 7:56 AM
Hi Arne,

At Happy Melly One we're experimenting with both Salary Formula and Merit Money. I have no experience with salary formula yet as it's still in a discussion phase. It will include one parameter - a level of experience, which is defined by team members. So the described dilemma could appear. Time will show :).

We'd been using Merit Money for almost a year in a distributed team of 6 people. There were times when I felt frustrated by others not valuing my contribution high enough. In all times I dug deeper and found it was mostly my fault not working out loud. It's a huge issue in a distributed team. I never sensed the dilemma you're talking about. However, there are two important conditions to mention: we converted hugs to money quarterly which is not really good - you see them more like salary, not like an unexpected addition to your budget - and the distributed amount of money was small. May be if the stake were higher I wouldn't talk that easy now :).

I'm looking forward for your further posts on this topic.

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Alex FürstenauDecember 25, 2014 at 4:03 PM
Hi Arne,

I have tried to solve that problem for several years with different ideas (no experiments). I always failed at the question: Why should person 1 get more money than person 2? Do we want to value experience, learning, contribution (whatever that means)?

At the moment I think that somebody needs more money if he/she is responsible for more people (wife / husband / kids ...). People on the same team should earn the same amount of money because they provide they same stuff (if you see the team as the smallest unit).

All this is increasing the dilemma. :-| If we would have a basic income for everybody, our companies could pay a fixed amount of money for every employee and depending on the team we are a part of, we could get some extra amount of money (which is also fixed for all team members).

I know that this will probably not help you but I am eager to hear about your experiments at jimdo.

All the best,
Alex
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AnonymousJanuary 16, 2015 at 1:40 PM
One thing that has helped me as a manager is to avoid the notion that I control money that my reports need to try to extract from me. It is actually hard to do, as this is often the view of how it works. Rather, I act as the report's advocate. I explicitly say to them that we are working together to further their career, get them promoted, get them greater compensation, etc. I am also work hard to be honest and transparent about where they are in their progress. If I feel they need to develop further in an area, I make sure they know it, and do what I can to help them. I think that this helps build trust. Does it keep them from skewing their behavior around me? No, there is no guarantee that it does, but I think I would be able to tell if they were trying to game me in a significant way. I also seek anonymous feedback from their peers/reports to get other perspectives, and that can help undo any gaming. In any event, I think that building a relationship where you are clearly on their side really discourages this gaming; they would be trying to trick their ally, and I would guess most people are hesitant to do so.

The other question, of course, is how the organization responds to this. If I recommend a raise/promotion for my report, how does the organization deal with this to fairly consider my report's peers? What if I am just a more forceful advocate? To be honest, this is something I am not involved in directly, so I can't say. From what I have seen, though, my organization tries, within each department, to respond to managers' recommendations in a way that does not result in complete lack of parity. There aren't standardized salaries, but there are ranges for each position. To a certain extent, I also attempt to be transparent about these ranges. Perhaps not using explicit numbers, but saying "you are nearing the top of your range", etc. As with everything else, one of the most important things things is avoiding surprises. If the report knows what to expect, it is fairer all around.

Of course, as your post suggests, salary is but one piece of the picture. I use the other parts to try to ensure reports' fulfillment/growth. Best of luck!!
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