As employers and employees, we have a choice as to how we conduct ourselves. We can choose to “get away with what we can,” or we can set our values and live by them. I believe that most people want to work in fair, meritocratic, high-integrity environments. However, the way salaries are typically handled is quite the opposite of that. In too many cases, both parties try to get away with what they can. Shouldn’t pay be determined by your value, not by your negotiating skills or some other bias?
At Neo (acquired by Pivotal this past January), we put a transparent salary system in place two years ago. Not everything we tried worked out, but this worked really well.
Everyone was paid based on how you mapped against a “skills matrix” that went from our junior employees right up to managing directors. You could see what the bands were for everyone else, and you knew that getting a raise was not about threatening your boss with a competing offer or waiting for a once-a-year review, but rather demonstrating that you had leveled up.
I believe that this salary transparency was deeply appreciated by our employees. I also believe that it helped us land prospective hires who had higher offers elsewhere. They instead came to Neo because they admired our “value and values” driven approach.
How did it work?
It was not an insignificant effort to put and keep in place. We created two things:
- a salary matrix for “juniors, mids, seniors” and also our management layer of “Principals” and “Managing Directors” (Neo was a consulting firm)
- a skills matrix that mapped to the salary chart
Our goal was to have a simple table so that you look up what band made how much money based on role/level and location.
Some key notes:
- We decided to pay engineers, designers and product managers the same. Equality within the delivery team was a core value. However, I would expect that in a lot of companies, role will dictate salary levels. Engineering, marketing and customer support might all have different pay levels, but this does not need to be a secret. Decide what you can and should pay, and then stand behind it.
- We mapped our core team to junior, mid and senior levels, but within those we actually had 3 sub-levels (i.e. J1, J2, J3).
- We had a separate sets of salary bands for each location, since we had 7 offices around the world at one point, but everyone could see all locations.
- We viewed salaries as “bands” not as single-point numbers. In other words, a J1 made “X”, and a J2 made “Y”, but in reality an employee was likely somewhere between a J1 and J2. We let our managers use their discretion in determining where the employee should be between X and Y, but they were not allowed to break outside of the band.
The skills matrix had two parts. There was a set of common traits that we expected all employees to have. We also went into specifics for each role. The matrix listed out our expectations for juniors, mids and seniors.
Naturally people had different seniority levels of different capabilities. For example, a PM might be “senior” in their understanding of agile processes but “junior” in their ability to do a financial model.
During each employee feedback/review session, which we tried to have at least once a quarter, our manager and employee pair walked together through the skills matrix. They discussed the level where they mutually placed the employee, where growth had happened, and where growth was desired (by either party). Edit: This was also informed by peer reviews. Ultimately, we relied on our managers to use their judgement whether their reports were junion/mid/senior, but rarely had issues.
A side benefit: by having something concrete to discuss, we had fewer problems with people thinking they were more senior than they actually were.
The matrix also helped us be more pro-active with promotions for our stars. We did not wait for an annual cycle to promote people or give them raises. If they had clearly leveled up on the skills matrix, they deserved a bump.
When we hired people, we walked people through the skills matrix. We could see where the candidate thought they were, and where we thought they were. It also helped people understand the real expectations of the job.
If someone tried to use a competitive bid against us to break outside of their proper band, we held our ground. We would not break the salary bands or fudge seniority to get someone. I’ll admit that this put us to the test a few times, but I firmly believe we came out winners for it, both in terms of candidates who joined Neo and those who decided not to join. Overall, people respected how we hewed to our values, and to fellow values-driven people, it made us a more attractive place to join. And while they could get a higher starting salary elsewhere, they could see the path to increasing their salary at Neo (and it didn’t require playing games).
At a lot of places, there is talk of “sure, do well and you’ll get paid more,” but job candidates are naturally suspicious. Too often it doesn’t happen — not even through ill intent, but rather because re-orgs happen or managers get distracted by other pressures.
As an employee, you never had to wonder whether you were leaving money on the table by not being a tough negotiator. You never had to wonder if a peer was getting more than you because they threw a hissy fit or threatened to leave. You never had to wonder if the men were getting paid more than the women.
Both the salary matrix and the skills matrix needed to be continually reviewed and improved. Market conditions change, and so too does sophistication about needs and roles and levels. I do not think it is possible to get to perfection, but perfection is the enemy of progress.
We had a fierce debate over whether to make our salary matrix transparent to the world, or just transparent inside of the company. If memory serves, there was concern that external transparency would make it easy to poach our employees. I disagreed, but went along with the more conservative approach. However, I would have happily shared our salaries with the world.
When it comes to retention, I don’t believe in playing a defensive game. I hate non-competes and non-solicits and think they are bad for innovation and society. I think you just try your best to create an awesome place to work for the people who fit your mission and values.
When we implemented our open salary and skills matrices, we found some people in the organization who were underpaid and gave them raises. I’ll be honest, it was expensive, but not as expensive as losing those employees. We grandfathered in people who had salaries above their appropriate salary bands. To be clear, no one had their pay drop.
When we rolled the program out to the company, we first made sure that every employee had completed a 1-on-1 meeting with their manager to discuss where they were on the skills matrix, and consequently what that meant for their salary. Only then did we open the salary matrix for everyone to see, and of course it stayed open from that point on.
It is a lot of work putting an open system in place for the first time, and you might have to deal with a shock wave or two when one group discovers that another is paid a higher rate. But it is worth it. Treat people like grown ups and they will usually act like grown ups. Honest and open reality is so much better than today’s typical system which begets disgruntled whispers, gender-based pay discrepancies, and a “get away with what you can” moral code.
Note: developing this system was a group effort. Particular credit goes to Jonathan Irwin, Josh Seiden, Gina Winkler, Mike Doel, Anil Podduturi, Daryl Manning, and our CFO Gary Bohe-Thackwell.