Holacracy and the Complexity of Creating a Compensation System

Holacracy makes everyone in the organization equal to the system, with guidelines and rules that enable every employee to voice tensions. However, Holacracy does not give any guidelines in regard to salary. And, as it is not the whole world that uses Holacray it is necessary to find a compensation system that can mirror the world outside the organization and still respect its flat and agile structure.

So, the question has come up, how do we make a compensation system that does not limit the system and still keeps the organization competitive?

Typically an employee’s compensation is based on the employee’s education level, experience, and then position that is undertaken. However, in Holacracy the compensation can not be based on roles (the close equal to title or position in a non-Holacratic organization), as this would take away the flexibility of the system.

To find the best solution for us we have researched and collected examples of how other companies have implemented atypical compensation systems that work. We are planning on sharing the outcome of our research at some point when we have found or developed a compensation system for Nightnurse.
In the meantime, we share the collected information on alternative compensation systems that we found, since we found that collected resources on Holacratic and/or alternative compensation systems are a scarce resource.


ZAPPOS


One of the first companies that adopted a differentiated compensation system was Zappos. Their system is based in a badge earning system – similar to what you might know from the scout badge system. Meaning that badges are earned within different ‘disciplines’, in chronological order, and granted by people already holding a badge at a higher level.

Badges represent a person’s skills and development within the organization, and thus, people holding the same badges receive the same salary.

The additional idea is that the badges create a clear progressional path for individuals to develop their careers within the company.


LIIP


Liip is a Digital Agency focusing on web development and mobile apps – and their Zurich office is actually just down the road from ours. Additionally, they run on Holacracy too.

Liip has developed a compensation system that is based on six criteria (education, experience, expertise, team player, communication and responsibility). Employees are given a number within each criterion that symbolizes how well they master them. The sum of the numbers represents the level upon which the employer’s salary is set.

All salaries are internally available to everyone – including the numbers of the criteria they are calculated from – and they do not do salary negotiations. However, they do evaluate all salaries yearly, based on a peer evaluation concept system that includes a group evaluation between a smaller group of five colleagues. If the salary is put higher or lower a (multi-filled) salary role reviews the arguments and makes an assessment that determines wheater or not the salary is revised.
They have no discrimination between job types, people with the same score gets the same salary, which has resulted in a low wage ratio of 2.5 between the highest and lowest paid employees.

At Liip there is no such thing as individual gratification or bonuses. All gratifications and bonuses are giving collectively if something is paid out it is equal for everyone or for none, also the amount. Other benefits at Liip include double family allowance and four weeks paternity leave.


BUFFER


From day one Buffer has done things differently. They are an online brand-building company with 85 employees that live and work from 15 different countries. In order to accommodate the differentiated needs of their diverse workforce, they had to come up with a compensation system that was transparent and flexible.

Buffer’s compensation system based on a calculation tool that calculates the salary based on (role base salary) x (living cost factor). Meaning that all roles have a pre-set salary base and depending on location related living costs the salary will be adapted.

Buffer employees living in an expensive city, such as Singapore, Copenhagen or Zurich the living cost factor will be higher than if they live in a city with lower living costs. Each role base salary is set based on the title an employee has and the department she or he works in.

All salaries including the calculation tool are publicly accessible to the general public. You can find the excel sheet with an overview of all Buffer employees and their salaries here.


MORNING STAR


Morning Star has taken things to a whole new level – by fully entrusting compensation to each employee – with a self-set salary system.

Salaries at Morning Star are revised yearly based on two letters. A self-assessment letter each employee writes, including an argument for a certain salary. And a peer-assessment letter written by colleagues the employee has one-on-one contracts with, which in Morning Star is called a CLOU contract. The two letters are then assessed by the Compensation Committee that gives feedback and advice if the salary is perceived to have been set too high or too low. Employees can choose to ignore the feedback or advice from the Compensation Committee and request to get the initial self-assessed salary.

If employees set their salaries too high the Compensation Committee has the power to enter into an Agreement Process to resolve the issue and bring both parties reach an agreement. Simply by prolonging the process so there is more time to create a mutual understanding, re-evaluate and make an agreement.

All salaries at Morning Star are benchmarked to salary-standards outside of the organization, to ensure competitivity and mitigate workers leaving for higher paid jobs in other companies.


ELBDUDLER


Elbdudler also works with a self-set salary system. Employees set their own salaries based on four questions:

  1. What do I need?
  2. What’s my market value outside of Elbdudler?
  3. How much do my colleagues earn?
  4. What can the company afford to pay?

After answering these questions – that is meant to help employees to assess their value – the employees can freely choose the salary assessed as fitting. All salaries are public, so everyone can see how individuals have chosen to set their salaries.

If one employee sets their salary “too high” they are asked to come up with a concrete proposal on how the company obtains a higher profit, and it is also up to this employee to execute the proposal in practice.


BUREAU BAARDA


Bureau Baarda does not just follow a certain compensation system. They went the extra mile and developed a management/compensation system that gives employees both a pathway of growth and development and a clear indication of an expected salary.

Employees are assessed in three ways. (1) The character of work that they do, which is divided into eight different categories ( Assistant, General Worker, All-rounder, Specialist, Generalist, Leader, and Strategist). (2) Their experience within the category they are placed in, here they have four levels (Junior, Medior, Core, and Senior). And lastly, (3) Concrete and abstract qualities, e.g. education, self-management, and drive. Plotting in an employee in this chart-like system determines the salary, which is pre-set for each field in the chart. Additionally, it gives the employee an overview of a potential pathway of individual growth within the company.

The Baarda Model can be further explored here.


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