Open Salaries: Outcomes

Some 20 months ago we decided to turn salaries at Lunar Logic transparent. We documented the process: why, when and how we did that. The most interesting part of the story, though, is how it all played out. Obviously, we couldn’t have known it all up front.

The core of our approach to transparent salaries is that it’s not only about transparency but also about control. When we made our payroll transparent we also introduced a collaborative method to change our salaries, a.k.a. give ourselves raises.

Let me start by sharing a few facts that show what happened since the change. We’ve had 43 salary discussions, but almost a half of them (21) were automatically triggered. The latter happens when someone joins Lunar and we need to set their salary, or when a probation period is about to finish, or we offer employment to our interns.

Interestingly enough, there has been only one occasion when someone proposed a raise for themselves. All other threads were started for someone else.

Participation in salary discussions has been healthy. It is a very rare case when less than one-third of the company speaks up. Before you think it’s hell lot of discussion remember, we are a small organization. Right, now there are 25 of us. It still means, that typically we can expect 8-12 people to share their views on a proposed raise.

These are dry facts, though. The most interesting thing is how our attitude and behaviors evolved through that time.

When I set myself to write this article I started with reading through the original posts about the change, which I linked at the very beginning. What struck me while reading the old pieces was how weird it feels to read how much of “I” was in the story. Understandably so. After all, it was mostly my initiative and facilitation to drive the change. However, by now it’s not “my” process anymore. It’s ours. Anything that happens with it is because of “us”, not “me”. Thus the weirdness.

This means, that salary process is simply one of the things that we use naturally, and it isn’t perceived as a change that’s been imposed on us. In fact, when we were summarizing the year 2015 many of us mentioned that making salaries transparent was a major achievement. Despite the initial fears of some, we’re doing great. Two years ago, I made a remark that “transparent salaries, once in place aren’t much of a problem.” It seems I nailed it.

We obviously made mistakes. After initial reluctance to use the new tool, there has been a time which we call “raise spree”. We’ve been discussing multiple raises at the same time and getting pretty damn generous. That triggered discussions about the general financial situation of the company and about consequences of different types of decisions. As a result, we raised our awareness and got more careful with raises.

A girl cartoon gnome struggles with the weight of a giant yellow gemstone.

We’ve had our disputes how we speak up in salary threads. We started with a premise that we want to be respectful. That’s not enough, though. Sometimes we may be respectful, factual and correct even, but it doesn’t make a useful argument for a raise. A simple fact that I’m good at, say, sailing doesn’t create an instant value to the organization.

Probably the most difficult lesson we learned was when during four months we gave one of our developers a raise and then we let him go. In both discussions, we had collective agreement what we wanted to do. Clearly, we made a big mistake either with one or with the other. The plus side is that we learned a ton.

The process itself also evolved. What was initially designed as a process to change existing salaries was adopted to decide salaries for new hires. Then we started using it to decide whether we want to offer a job after an internship. We introduced a deadline for the end of discussions to provide a constraint how much time there is to speak up. Some heuristics have been developed to guide us through the final decision making. My favorite one is about options. When voices are distributed across few different salary levels we typically go with the lowest as it provides us with most options for future. We can always start another salary thread for that person soon (and it happened a couple times), while it wouldn’t work the other way around.

The meta-outcome, which is something that we initially aimed for, is there too. People are getting more involved in running the company and understanding the big picture. They are becoming more and more autonomous in their decisions, even when significant money is involved. I think it is a fair statement that our payroll has become fairer too.

I’m also happy about change for one selfish reason. I never learned to like, or even have neutral feelings towards, discussions about raises with people from my teams. Several hundred of these discussions definitely increased my skill at them, but my attitude didn’t really get better. And suddenly, I’m not one of the two parties in negotiations. If I perceive myself a party, I’m one of twenty-five. And not any more important than either of the rest. I guess, for almost every manager out there, it would be the same as it was for me: a huge relief. And we got better outcomes too. That’s a double win.

However, absolutely the best emergent behavior that was triggered by open salaries is how we share feedback with each other. The pattern is simple enough that it should have been obvious, yet I had no idea.

Boy and girl cartoon gnomes discuss how to divide up their salary of gemstones.

When we start a salary thread for someone and I have an opinion I will share it soon (typically a deadline for speaking up is around a week). However, to keep it respectful, before I write down my opinion in a discussion thread I will go talk to the person who is about to get a raise to share my feedback. After all, I don’t want them to be surprised, especially whenever I have some critique to offer. Suddenly, whenever we’re discussing somebody’s salary that person gets a ton of feedback.

That’s not all, though. If I have a critique to offer about something that is a few months old, I can hear in return something along the lines of “Hey, I wasn’t aware of that. Why didn’t you tell me earlier? I could have worked on that.” Now, I don’t know when we’ll be discussing a raise for that person, as anyone can start a salary thread at anytime. This means that I’m actually incentivized to share feedback instantly.

That’s exactly what we’d love to achieve. And that’s exactly what we started doing to a huge extent. Despite the fact that for long, long time at Lunar we were definitely above average when it came to sharing feedback, I wasn’t happy. I wanted to see more peer-to-peer feedback. Despite different experiment I wasn’t happy until we changed how we manage our payroll.

This is the best part of having transparent salaries. In retrospect, I’d go for open salaries purely for that reason: much more high quality peer-to-peer feedback.

By now barely anyone could imagine, let alone change back to, Lunar Logic without transparent salaries. Even if the transition was a tad bit tricky it paid off big time.

  • This is an interesting topic. I would like to know how those things work for you:

    > “Suddenly, whenever we’re discussing somebody’s salary that person gets a ton of feedback”

    How do you guys do that? Does the person who’s salary is being discussed get a lot of confidential feedback from their peers, or is it an open feedback discussion where everyone can see the comments? The latter would be very harsh and I am not even sure if it is entirely legal. Normally feedback from peers is being collected through 360 reviews and that feedback is very personal and in every company I have been so far this been treated as confidential data which was only meant to be seen by the person who has been reviewed.

    How do you deal with high earners and does this environment even allow someone to become a high earner? For example if you have a real talent in your team who wants substantially more than other team members in a similar position and they probably deserve the salary because they could perhaps get such an offer somewhere else would you then acknowledge that and pay them more whilst not increasing the salary of others?

    How do you deal with someone who asks for a pay rise after they have recently received a pay rise? Do you think the current environment encourages your staff to be brave enough and speak up again where everyone can see it if they feel they deserve another pay rise in a short period of time?

    Do all your engineers on the same level earn the exact same amount or do they have little differences? For example two senior guys where one earns 2k more than the other? How do you deal with it when one engineer asks for a small pay rise and you know that others will want to ask for the same when this one gets approved? Do you find yourself saying “we cannot do this because it would be not fair to the others”? That would be essentially unfair to that individual, because his salary should not depend on what others earn. They surely should get what they are valuable to you. Did you ever ran into such an issue?

    Thanks for sharing all of this!

    • Paweł Brodziński

      On feedback. It’s jest about being respectful. Eventually you want to share your opinion about someone in their salary thread and it’s going to be written. However, given that you want act respectfully, before you write it down you take that person to share the feedback with them first. It most typically is one-on-one chat. And on occasions that chat influences you opinion too before you share it. It isn’t a formal rule, though. It’s the part of the organizational culture.

      On high earners. Technically, the environment allows to be a high earner. There are two things into that. You refer to “a position”. There’s no such thing at Lunar. You can have any position you have. You name it and it’s your position. The discussion is about roles you fulfill, or can fulfill. Almost always there are at least a few of them. You can be a back-end dev, a front-end dev, a tech lead, a project leader, a mentor, and so on and so forth. Another thing is that our definition of what constitutes a perfect candidate is unusual. We pay a lot of attention e.g. to how one contributes to company culture, how they influence team dynamics, etc. From that perspective, simply becoming a more efficient developer earns some points, but it doesn’t automatically make you a top performer, as there are all those other areas that count too. There are, however, people who were getting very significant boost of their salary in very short time (e.g. 50% pay increase in less than 3 quarters), which clearly shows that the system works for people showing their talents.

      On consecutive pay raises. Well, somebody asking for a raise for themselves is a rare case. However, it happens that we propose a raise for someone who recently got one. E.g. the example with 50% raise I used before happened in two consecutive decisions and it’s all fine. In a way, you don’t even be brave enough to do that. Your colleagues would take care of that for you.

      On pay levels. We don’t have levels. You probably could have derived something vaguely looking at the payroll but it wouldn’t really reflect what is happening under the hood. A partial answer to your question is that distribution of salaries is not punctuated, as in: a few salary levels and people assigned to one of them. It’s more nuanced and there are differences between people who may be perceived as doing similar things. This means that we actually do say things like “I don’t think it would be fair a person A to earn more than a person B” or “In isolation a proposed raise seems fine but when I look at the payroll I believe it a smaller raise would be fairer overall”. When we get to such nuances, though, we don’t discuss huge differences. It does not significantly change somebody’s position in a general job market. What we try to optimize for is collective fairness. We acknowledge that keeping the payroll as fair as possible may mean that an individual may feel being treated unfairly. After all, all it takes is my inflated self-esteem boosted by my overgrown ego to feel that I’m underpaid. From this perspective we will go for well-being of the collective over well-being of an individual. As one famous football coach said: no player is bigger than the team.

      Oh, and a general remark, what is fair for an individual depends on the context. The same engineer can be extremely valuable for one organization and useless for another. This is why “job market value” is not just a number that is fixed for anyone. If there is someone whose value for us is a half of what it is for another company they should seriously think of changing the job. Unless non-monetary value that they get is worth at least as much as that additional money they could have been getting.

  • Heidi Adam

    Interesting, however not easy to understand for an old lady, who learned English 50 years back in school in Australia for 6 years. Looked up heuristic in my translater, which said heuristisch in German ?? And can you explain the following sentence, please? ‘The pattern is simple enough that is should have been obvious yet I had no idea’.
    I miss punctuation for better understanding.
    It is also difficult for me, used to old payment systems, to understand, how you judge the abilitys of others. Isn’t it even hard to judge our own ability and leads to a lot of differences in a team?
    However I’m impressed, if it works for justice and fairness and doesn’t take too much of precious time to discuss. Good luck!

    • j

      hi heidi, hi all :)

      translations in german first:
      heuristisch kann heissen: eine eventuell nicht optimale, aber ausreichende, loesung.

      the pattern is … heisst:
      “das muster ist einfach genug, dass es offensichtlich sein sollte, trotzdem hatte ich keine ahnung.”

      ueber das urteil anderer was die eigenen faehigkeiten betrifft:
      wenn die gruppe es schafft, eine offene und ehrliche kultur zu foerdern, die nicht auf gier und neid aufbaut, dann ist dieses modell fast ideal.
      die ehrlichkeit und offenheit ist dann ein bonus :)

      english translation of the last paragraph:
      regarding rating the ability of others / being rated by others:
      if your group manages to have an open and honest culture that is not based on greed and jealousy then this model works wonders.
      the honesty and openness of communications in your team is a bonus :)

      @pawel: did you by any chance see the ted talk by ricardo semler? i think you would enjoy it a lot:
      https://www.youtube.com/watch?v=k4vzhweOefs

    • Paweł Brodziński

      The way of assessing value people bring to the organization is neither obvious, nor easy. When we were introducing open salaries we discussed different options. In general, there are three.

      1) Formula-based. Here, you basically structure everything that a company may value into a formula. These may be things like years of experience, or knowing specific technologies, or experience in leading teams and so on and so forth. In such a system people would see a few options what they may do to bring themselves to the next level and then they’d automatically advance, a.k.a. get a raise. This requires knowing no broader organizational context.

      2) Appraisal-based. Here, the source of assessment is an appraisal you. Most of the time it is 360-degree type of an assessment where your bosses, your peers and your subordinates all get involved in the appraisal. However, the fact it is an appraisal meas that it is still structured. There would be specific areas which we rate a person on. It would be more subjective than a formula and the same time would potentially open some avenues to discuss things that haven’t been pre-defined. This approach requires understanding at least a bit of organizational context. After all, I need to know what is valued in the organization.

      3) Opinion-based. In this case we don’t have any formal means to come up with an assessment. What we have is a lot of organizational context. Here are the things that we value. Here are the desired behaviors. Here are the traits that we seek. Here is the financial context. Now, go figure. Of course one person’s opinion will be subjective. We go by the assumption that collective subjectivity as close to objectivity as it gets, though. And of course, initially, we’d be making mistakes. The thing is, the process is transparent so we have training material as well. Not only can we discuss salaries but also how we discuss salaries. This approach promotes diversity as it up to us to decide what is valuable within broader context. It also requires by far most understanding of organizational culture and all the constraints.

      After the discussion we decided to go with the last option. The rationale was that we didn’t see any reasonable way of assessing some things that were important to us. One example was anything that was connected to our contributions to organizational culture of the company. However, any structured way of assessment also narrows the vision as we’d end up assessing only things that we could have seen up front, and we know that we can’t know everything up front.

      Then we were simply investing our time and effort to gt better at expressing our opinions about others in salary threads.

      One nice thing that helps a lot is that there is always a bunch of people speaking up so that we continuously confront our views with those of others.

  • Max

    IT WILL FAIL. Salaries are not open for a reason. It is against human nature. It might work when you have a small team everyone knows about everyone’s contribution and impact. But if you get larger, there will be different roles, different experiences , different abilities, hard to quantify impact etc. Unless there is a large gap of skill/contribution among people , for 99% of us, we tend to overestimate our own skills/impact and underestimate other people’s skills/impacts. So sooner or later everyone is gonna think they are mistreated and that they don’t deserve less than the other guy. God, good luck solving that problem. I

    • UNIX admin

      “IT WILL FAIL. Salaries are not open for a reason. It is against human nature.”

      Which nature is that?
      The only reason why salaries were a secret was because if two people who did the same type of work at same efficiency found out that one of them is underpaid, there would be a mess. That salaries are to be secret is a strategy designed to benefit the employer, but as with all rotten things in hardcore capitalism, it’s a short-sighted, short-term strategy. That’s not to say that capitalism is bad (it’s great, but rotten capitalism as we live it today is really, really bad. It’s destroying everything.)

    • Paweł Brodziński

      You got one thing right. Most people do believe they are above average. It’s called overclaiming effect–we do believe our contributions are more significant that they really were.

      However, you got the numbers wrong. What research shows is that, depending on the context, up to around 70% people tend to think they are above average. It’s definitely not close to 99%. Overclaiming effect is responsible claiming up to around 40% more work that has been done. It means that if we sum up individual claims we’d end up with a perception that total contributions were more than 100%, which is clearly impossible.

      There is good news too. With a simple trick overclaiming effect can be ruled out. It’s enough that we start with acknowledging others’ contributions and end with ourselves. Simply raising own conscious awareness helps us to overcome the effect.

      And in fact, we are doing this whenever we are discussing salaries. These discussions are put in the context of the whole payroll and we often acknowledge contributions of others in these discussions, or bring others as reference points. Before the decision is made there’s also a number of comments with feedback that helps to structure one’s thinking about the salary in a broader context. What’s more that feedback comes from different people and different points of view, which raises self-awareness even further.

      Collective participation in the process dramatically helps us to take into account different skills, abilities and traits, especially those that are not core to a role. Interestingly enough, we often bring to a discussion things that a person whose salary is being disputed wouldn’t even think of.

      The answer to the scaling up challenge is also fairly simple. Right now for any given salary discussion we typically have 8-12 people participating. This creates a web of connections between people who can share opinion about others’ work. Given that we don’t have any silos in the organization, this mesh covers the whole organization with very, very few, if any, nodes that are weakly attached to the rest (and when I say weakly it still means 4-5 connections). As long as we maintain this mesh any single person doesn’t need to know about everyone else. Unless we completely isolate parts of the company from the rest it will scale up nicely.

  • Thanks for sharing this, the outcomes are quite inspiring.

    Towards the end of the post you are mentioning that you ran different other experiments to improve peer-to-peer feedback. Can you share anything about those?

    • Paweł Brodziński

      There have been quite a few. A feedback wall where everyone put their envelope on the wall in a shared kitchen and everyone could anonymously drop feedback for anyone. Initially it was “only positive feedback” but later on occasions people would put an envelope with their name and ask for all sorts of feedback.

      There is kudos: http://blog.lunarlogic.io/2013/great-job-take-this/

      I once run personal ritual dissent on myself: http://brodzinski.com/2014/04/personal-ritual-dissent.html

      There has been a lot of encouragement to share peer to peer feedback on many occasions.

      There was also me, back then still acting a lot like a manager, refusing to be a proxy for feedback and basically asking people commenting on others “Have you shared that with an interested party?”

      There have been a number of polls run by different people that tackled the topic of feedback in one way or the other.

      And many more.

  • Dave

    Thanks for your inspiring sharing, it makes us think a lot about the current salary system.

    From your reply to comment, you said the system allowing higher earner, how about lower earner, does the company allow lower earner?(given that the pay reasonably reflecting his/her ability) Is there anybody getting obviously lower pay than other colleagues? Will colleagues try to be nice to someone getting obviously lower pay and give him a rise just because of this?

    And how does it feels to know that you are getting the lowest pay in the company? Have you talked with that colleague about this?

    • Paweł Brodziński

      Technically the system allows lower earner to thrive. It’s the whole another question whether we’d be happy with someone who is developing themselves at a very slow pace, as we pride ourselves as craftsmen. However, there are no behaviors like “let’s give somebody a raise just to be nice.” I’d even go that far to say that we don’t have the tendency to be generous when discussing salaries at low end of the scale.

      Lowest earners tend to be also people who are just starting their careers, and there’s good dynamics of changes in their salaries so there isn’t a problem there really.