How to Pay

This is a compilation of what we have learned about open ways to pay your employees.

1) The hardest thing to get consensus on is how to pay people. In fact, we will seldom get full consensus, all we can hope for is consent: people agree to work that way even if they may not agree it is the best way.

2)  The fair way to pay people is according to their value to the organisation,  and that value is a combination of (a) their capability (what they can do) and (b) their contribution (what they do do).

3) To evaluates their capability, we use a tool called shu-ha-ri, where teams determine the skills that they need to create value, and then agree each person’s maturity in that skill, collectively through peer review.  We have a matrix of skills, and the shu, ha, and ri level for each. People’s skill is assessed by their ability to deliver value, not by deconstructing the individual skills that make it up (that becomes too complicated and subject to debate). We can come up with objective criteria for delivery and others that need to be more subjectively assessed for each person by team peer review. Shu-ha-ri level can be recognised by salary level, and/or by share of commission/bonus payments (which should be given to the team).

4) Base pay should be set on capability only, not length of service or “rank” or any other factors (or minimally if you must do it).  Everybody’s pay should be the maximum the organisation can afford, not the minimum you can negotiate an employee down to.  Staff are not a cost centre to be minimised.  They are the custodians of a strategic asset (capability: institutional knowledge and skills) to be retained and  nurtured.

5) To evaluate contribution of each individual, again there can be objective and subjective measures. In independent transactional work – each person working alone to the the same thing over and over – you can measure the output of each person objectively. In collaborative knowledge work you can’t easily separate out the output of each person. In a factory everybody works at a steady rate set by the cadence of the production line. In most workplaces they don’t. Some people contribute through lots of constant hard work. Some people contribute through bursts of powerful performance when it is most needed. Some people contribute quietly and almost invisibly. It is near impossible to fairly assess individual contribution.  If you must do it, contribution needs to be assess subjectively by peer review, not measured by counting. Contribution may be recognised by sub-levels within shu, ha, and ri for performance. Or the team may hand out bonuses to each other from a pool. Or similarly, they may divide the team commission by performance for that period.

6) Better still, don’t pay individual contribution at all.  It is a hangover from 20th Century management thinking. It only encourages competitive behaviours between staff, or resentment when it doesn’t reflect their perception of their own contribution. Pay the group for results, by sharing profits.  The group may be a team, a tribe, a division, or the whole organisation.  Choose as large as possible, to reduce competition for the money.

7) Don’t tie incentives to behaviours or individual metrics.  All KPIs distort behaviour, don’t use them. Incentives don’t drive the right behaviours, they only reinforce them. They’re an unhealthy motivator. Motivate with vision, purpose, and leadership. You shouldn’t have to pay people to do things, though you should pay them as much as you can afford for being part of your organisation.
Get over incentives and get people working because they want to.

8) We promote the idea of pay transparency, in fact all financial transparency. Secrecy breeds distrust. Transparency breeds understanding.  If we have pay transparency, and people see that somebody with a very similar shu-ha-ri profile to themselves is being paid differently, this will cause dissatisfaction. The transparency surfaces injustice when people are paid differently without a good reason. But it also creates tensions as we need to explain differences that come about for valid reasons, because although the capability is the same, the contribution is different.

9) When we are financially transparent, then everybody knows what revenue and profit are being made, and how they are shared across stakeholders: owners, government, partners, staff.  They understand how the pool of money for paying staff is arrived at, what is put aside for bad periods to protect staff, what is left each month for commissions and bonuses.  Staff can see that best efforts are made to maximise their pay.