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.

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