Compensation in Holacracy: setting salaries without managers

Written by Rosien van Toor on 15th June 2017

Spindle has been growing steadily over the past years. Not only in size but also going through several changes in company structure and the formal adoption of Holacracy as our organization model two years ago.

What didn’t really change was the way we set salaries – although that work was formally captured in a role when we adopted Holacracy.

Scaling from startup to medium-sized company

As the company grew, the complexity of setting salaries increased too. People often take on very different roles, for example combining technical roles with people-related (HR) stuff. And best of all? These roles (and the accountabilities that come with them) can be given back at any given time! This means that the type of work or the focus of one’s skill set can drastically change over time.

This increasing complexity also led to an increased ‘fuzziness’ in the salary structure; it wasn’t very clear what the current salaries were based on and, in certain situations, why someone had a higher or lower salary than someone else. Besides this, there was a feeling that maybe some salaries were below the average market value.

Roles instead of functions

Working with roles means we have no functions, let alone function descriptions that are the foundation of many traditional salary systems. We also don’t have managers that decide what you should spend your time on, or how you should spend it. So how the hell do you ‘do’ compensation in an organization like that? You make your own system!

Create a new system

After many extensive discussions, we’ve decided to tackle this complex problem once and for all. The requirements of the new system – based on previously existing and expected tensions, were the following:

  • It should be transparent how salaries are set for everyone in the organization
  • It can’t be based on functions (because we don’t have those)
  • It can’t be directly tied to roles (this would take the flexibility out of Holacracy, and we were worried that people would hold on to roles for monetary reasons, even if they’re not the best fit for the role)
  • It should give clear performance indicators that make it easier and more objective to assess performance

Based on this wish list, we eventually found a model that looks at people instead of function descriptions. Right up our alley! And, even though this model was based on a traditional, hierarchical organization model with managers, we felt like we could tweak it enough to translate this to a Holacratic organization.

Looking at problem-solving skills

At the heart of this model is the assumption that people have varying levels of problem-solving skills. One of the factors to define their problem-solving skills, is the amount of variables they need to track to do their work. This determines their added value to the organization. We also assume that, especially in a flexible organization like Spindle, people will organize their work so that it best fits their problem-solving skills. This way, we can look at how the job is done, instead of only at what job is done.

The pathway matrix

In the model, there are eight defined pathways/profiles, based on differences in abstraction level and problem-solving skills. These pathways range from helper to leader (x-axis). Not all eight are necessarily present in each organization. Each pathway, then, has four levels associated with it: junior, medior, core and senior (y-axis). Everyone has a combination of a pathway and level, and it is assumed that the level will change as you advance in your career (you grow from junior to medior etc.) but you much less often change in a pathway. All possible combinations of pathways and levels can be represented in a matrix.

This matrix represents the whole organization and gives a very clear picture of where your organization’s strengths are, and which positions are underrepresented. For example, there might be not enough senior positions to mentor the juniors.

With every position in this matrix comes a pay grade, further divided into steps. If this reminds you of a rather traditional salary system, with pay grades and steps and annual growth, you’re not wrong. Except that we totally tweaked it for a non-traditional organization.

What makes it so different?

The biggest difference – unsurprisingly, we hope – is that there are no managers that determine your place in the matrix. Your combination of pathway and level is determined by your direct colleagues, fellow circle members, and lead link(s). They make their decision based on the work you are actually doing, and also on the way you are doing the work. This is a fundamental distinction because it is ultimately up to the energizer of a role to decide how this role is best fulfilled. This means that two people energizing the same role can do so in totally different ways – which in turn says a lot about level and profile.

Facilitating the process

To help to assess someone’s position, there is a clear description of what behavior is expected from each pathway/level, including a set of yes/no questions that can help to narrow things down.

A role, the Beardista, was created to implement this new salary system and to help interpret the model and any of the profile descriptions. This role also facilitates the process during which a colleague is plotted in the matrix. Like a facilitator in a normal Holacracy meeting, they are there only to guard the process and don’t let their personal view interfere.

Once a colleague has been plotted in the matrix, it is up to another role – the Salary Calculator – to make sure their salary fits with the new salary framework. This framework lists all the pay grades for each pathway and level, and is in line with current competitive salaries.

Growing within a horizontal company

What is really cool about this system is that, even though we are a horizontal organization, there is now a clear way for people how to make steps in their career (without becoming a manager). This way, we can acknowledge that people can grow without giving them a completely different set of responsibilities – and reward them accordingly.

It’s also much more clear for everyone how they can expect their salary to develop in the future and there’s a very clear process on how to ask for a re-assessment of your position in the model; basically asking for a raise with a very transparent list of requirements.

The result: a transparent salary system

Since transparency is in our DNA and we don’t think salaries should be shrouded in mystery, we really feel that this new salary system is a huge win for the organization.

Your thoughts

  • Written by John Hermarij on 20th June 2017

    I read the book and became convinced it should work. Thanks for sharing this piece of ecidence.

  • Written by Folkert Ringnalda on 25th June 2017

    Thumbs up for the effort put to come up with an app (on top of the operating system Holacracy) for those salary tensions. I have a couple of questions though;
    – how is the Beardista role assigned to? To the GCC? To Resource for Humans Circle or the like? Or is this role assigned to a member of each circle?
    – I don/t see the problem of people sticking to their roles for monetary reasons? Roles are assigned to persons for a specific period of time. Besides this the Lead Link has the authority to assign and withdraw people from roles (except elected roles). I agree that your solution/model is more transparant. Why didn’t you assign this role to the person who already has the role of Lead Link (within the circle)?
    – what is your opinion on the somewhat provocative statement of Baarda that do-ers can’t be thinkers!

    Good luck with the implementation en integration od the Beardista (nice name 😉
    Folkert

  • Written by Joris Engbers on 26th June 2017

    Hi Folkert, to answer your questions one by one:

    – how is the Beardista role assigned to? To the GCC? To Resource for Humans Circle or the like? Or is this role assigned to a member of each circle?
    > The Beardista role is assigned by the People Operations lead link. ‘Compensation’ is a domain of the People Operations circle

    – I don/t see the problem of people sticking to their roles for monetary reasons? Roles are assigned to persons for a specific period of time. Besides this the Lead Link has the
    authority to assign and withdraw people from roles (except elected roles). I agree that your solution/model is more transparant. Why didn’t you assign this role to the person who already has the role of Lead Link (within the circle)?

    In holacracy we like the aspect that people can develop themselves in unexpected directions. We thought that making a direct connection between role and level would introduce distorting incentives into the system. We also believe that anyone will energize a role according to the role they have in the Baarda system.
    For example, if you have a very small administrative role, you can energize by doing the tasks required of you in that role. Or you can try to automate or distribute the administrative task in such a way that the role is no longer necessary.

    – what is your opinion on the somewhat provocative statement of Baarda that do-ers can’t be thinkers!

    The statement would be that you cannot be both at the same time. In no small organization does anyone have the luxury to be able to drop all doing or all thinking tasks. It does however become pretty obvious pretty quickly what kind of projects make you the happiest. This model makes it easier to talk about that aspect of your work. Implementing the system made it clear that out of a sense of duty towards the organization we currently have thinkers filling their day with doing work and vice versa.

  • Written by Tracey Mather-Lamont on 27th September 2017

    This sounds really great .. thank you so much for sharing info on other systems companies are creating, that go along with Holacracy much better than traditional systems. If you are interested in providing consulting advisement to other companies on how to implement this system, please let me know 🙂

    Best Regards,
    Tracey

  • Written by Rosien van Toor on 6th October 2017

    Hi Tracey,
    Thanks! I hope it will be of use to other holacratic companies – I know many of them are looking for a way to implement their own system because holacracy doesn’t provide a clear solution for compensation. Hopefully this model can serve as an inspiration.

    All the best, Rosien

  • Written by Cyrus on 23rd March 2018

    Hoi there,

    Thank you so much for sharing this knowledge. As a startup trying to figure out all the details of how we’ll be operating, this was immensely helpful.

    Not sure if you, or anybody else here, has an opinion on how this relates to founders in general?

    Dank je,
    Cyrus

  • Written by Rosien on 28th March 2018

    Hi Cyrus,

    Glad to hear it was helpful! The role (in a non-holacratic sense of the word) of founder is a tricky one. Depending on the way the company is organized (holacracy, a more traditional setting, sociocracy etc.) , there might be a pretty big difference between their formal and informal roles (and power) which makes it a little bit more complicated to set compensation. If you want to narrow down your question or elaborate on your situation I’d love to share thoughts!

    Graag gedaan 🙂
    Rosien

  • Written by Miguel on 9th July 2018

    Great article and insights. We’re going Holocratic as we speak. But it does leave some questions. So it’s good to read how others have solved those challenges. (You might want to reconsider the hero image though)

  • Written by Rosien van Toor on 10th July 2018

    Hi Miguel,

    Oh, thanks for pointing out the header image. Not very flattering 😀 I asked my colleague to change it. Good luck with implementing holacracy! There are a lot of things holacracy doesn’t solve or give suggestions for (compensation being one of them) but it is part of the fun to figure all that stuff out as you go along!

    Rosien

  • Written by Rutger on 27th January 2019

    Great article! Thanks for sharing.

    I’m looking into Holacracy and Baarda for quite some time and I’m trying to mix them too. Do you mind sharing some more details on your implementation?

    How do you determine where on the matrix an individual will be plotted? And I’m also curious how your matrix looks like.

  • Written by Rutger Meekers on 27th January 2019

    Great article! Thanks for sharing.

    I’m looking into Holacracy and Baarda for quite some time and I’m trying to mix them too. Do you mind sharing some more details on your implementation?

    How do you determine where on the matrix an individual will be plotted? And I’m also curious how your matrix looks like.

  • Written by Rosien on 31st January 2019

    Hi Rutger,

    I think answering the questions will be a whole other article by itself (which is great, because we’re working on an e-book about exactly this!) but in the meantime I think it is easiest if you send me an email and I’ll get back to you: rosien@wearespindle.com

  • Written by Judith Beyerbacht on 7th February 2019

    Beste Rosien en collega’s,
    Laat ik mij allereerst voorstellen! Ik ben HR Manager bij Sqills, een software ontwikkelorganisatie met HQ in Enschede. In het verleden hebben wij in samenwerking met Bureau Baarda een functiehuis, functieprofielen en een salarishuis ontwikkeld. Wij merken nu dat onze sterk veranderende organisatie iets nieuws nodig heeft. Van functieprofielen naar rollen en een andere salarisstructuur, minder rigide etc.
    Ik wil hierbij zo brutaal zijn om te vragen of ik een keer zou mogen langskomen om over jullie ervaring wat te horen zodat ik meer beeld zou kunnen krijgen of jullie oplossing in de richting komt naar waar wij op zoek naar zijn. Ik hoor het heel graag!
    Hartelijke groet,
    Judith

  • Written by Rosien on 21st February 2019

    Beste Judith,

    Bedankt voor je reactie, ik heb je gemaild!
    Groetjes,
    Rosien

  • Written by François on 12th March 2019

    Hi Rosien,

    Thank you for the post. It is very interesting, implementing a new compensation system is quite a challenge and you seem confident about the execution !

    How do you manage compensation gap in the same functional level ?
    For instance if 2 employees are specialists, one with 1y of experience, the other with 5y. If the 1y-experienced one is actually smart and as efficient as the 5y-experienced one. Will there salary still be equal ?

    Thank you ~

  • Written by Rosien on 11th June 2019

    Hi Francois,

    Within each pathway we distinguish several levels: junior, medior, core and senior. In our experience this is enough differentiation to distinguish experience levels like the one you illustrated, where in the specialist pathway the person with one year experience will most likely be a junior (but on the way to medior) and with five years experience probably medior.

    All the best,
    Rosien

  • Written by Elisabeth on 8th November 2019

    Since you don’t attach payscale differences to roles, do you then have only one “column” in your matrix? Moving progressively from “junior assistant” through “medior,” “core” and “leader assistant,” on to “general worker,” and on up from there to the highest tier?

    Or are you including separate columns for the type of work performed, in addition to these tiers & pathways? For example, are you differentiating between a “medior specialist” software developer and a “medior specialist” graphic designer, or would these two tiers/pathways receive the same salary regardless of their different areas of work?

  • Written by Zuzana on 8th November 2019

    Hi,

    perfect article. It´s very helpful. I have studied a lot of material of model Baarda and we would like to apply it in the organization. But we aren’t still sure which way to classify individual into matrix is right.
    Please, can we write more about this?

    All the best,
    Zuzana

  • Written by Rosien on 14th November 2019

    Hi Elisabeth,

    We only differentiate between pathways and levels (tiers) and don’t map them to the type of work. So indeed, the medior specialist software developer and the medior specialist graphic designer would be in the same pay grade, like you said.

  • Written by Rosien on 14th November 2019

    Hi Zuzana,

    I’ve answered your question on the Holacracy Community Forum – hopefully that helps but if you have any more questions don’t hesitate to get in touch.
    Take care!
    Rosien

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