How we make salary decisions at Sharetribe
Salary transparency fosters fairness and trust. It also raises the stakes for decision-makers and demands that any differences in compensation can be openly justified.
Jan 25, 2022
Salary is a big deal. Fair compensation motivates us and supports well-being at work and off work. It is also integrally connected to pay equality in the labor market, with wage gaps between gender and racialized groups persisting despite considerable improvement over the past years. One way to combat these wage gaps is salary transparency.
We want everyone at Sharetribe to have a fair salary. Everyone should be compensated in a way that matches their contribution to the company and its goals. Their salary should be balanced with both the compensation of other team members and what similar roles pay in other organizations. This post shares the seven principles we use to decide salaries, starting with salary transparency.
We've always had transparent salaries within the team, so naturally, we feel our process should be transparent as well. We hope sharing our principles can help other founders navigate challenges around salary decisions. There are many things to consider: questions around fairness, diversity, and equity on the one hand and the challenge of attracting and retaining talent in a competitive labor market on the other. While we're far from finding a definite solution to all these questions, we feel our salary decision process helps us take steps in the right direction.
Before we begin, it's important to note that the principles are not set in stone. If we recognize a change is needed, they will evolve.
1. Everyone knows each other's salary
We believe it's important for everyone to know what everyone else in the company is making. This fosters fairness, accountability, and trust. Without transparency, compensation might become contingent on negotiation skills rather than actual contribution to the company. We don't want that – we want everyone to be able to trust that their work gets noticed and fairly assessed.
Salary transparency means that if someone isn't happy with their or another team member's compensation, they can contact us, the founders. They can make their case and ask us to explain how and why the salary decision was made. Transparency guarantees accountability since each salary and salary difference must be openly justifiable.
Also, taking negotiation out of the salary equation can help reduce pay gaps. According to several studies, women may be more reluctant to ask for a raise and be perceived more negatively when they do. Salary negotiation is also subject to racial biases. While we can't say we don't have work to do on this front – the majority of our highest-paid and senior positions are occupied by white men – we believe the transparency of salaries and salary decision processes is critical in maintaining fairness when we make new hires and adjust compensation levels.
2. Founders make the final decisions
All decisions on compensation are made by Sharetribe founders Antti (COO) and Juho (CEO). We initially landed on this principle very naturally: in the early days of Sharetribe, it was just the two of us. When new people joined, we decided their salary.
Over the years, we've discussed other alternatives from more traditional hierarchical models ("Guild Leads* decide the salaries of their guild members") to self-management practices ("Everyone decides their own salary" or "Peers decide each others' salaries"). So far, no other model has gained significant support from the members of our team, so we've stuck with the two of us making the calls. While it is likely that this model won't scale if Sharetribe grows a lot bigger, for now, the original principle remains.
*At Sharetribe, we use the concept of a "guild" to refer to people with the same competency. People who belong to the same guild have a skillset that goes under a label like engineering, design, or marketing, and the role of the guild lead is to help people in the guild get better at their craft.
3. Feedback is crucial for fair compensation
It's not possible for us founders to make the right decision without getting input from others. We don't work closely enough with every person in the team, and so we can't fairly assess the level of their contribution independently. So we ask for feedback. We post a feedback form before the adjustment round to allow everyone in the company to have a say. It's possible to give feedback on any other team member's salary and contribution, including your own.
Giving this feedback is voluntary. However, Guild Leads are expected to provide input on at least two things: 1) The compensation balance among the members of their guild, and 2) The overall compensation balance of their guild compared to other guilds. This ensures no-one's contribution is overlooked and that we take wider considerations about the salary development in different professions into account.
Collecting feedback on sensitive topics like salaries is made easier by our culture of candor. Discussions at Sharetribe are based on people expressing what they really think, even if that sometimes feels uncomfortable. Candor improves the quality of feedback, and we make sure to remind everyone of its importance when we ask for salary input. We also ask for input after the decisions have been made and have sometimes made corrections thanks to candid feedback.
4. Compensation is adjusted annually
We make adjustments to compensation once a year. It's not possible to evaluate the correct compensation for one individual without considering the compensation of other team members. Thus, it's a lot easier to make all the adjustments at the same time. Otherwise, constant evaluations would quickly become exhausting.
Our system also relies heavily on feedback from the whole team. Requesting feedback on compensation more than once a year would be burdensome.
Finally, annual cadence ensures that there's enough time between two adjustments, which makes it easier to evaluate a team member's contribution.
There are four exceptions to this principle:
- If we receive feedback shortly after the decisions have been announced and conclude that we got something wrong, we'll fix it.
- When new people are hired, we have to assign them an initial salary without knowing what their level of contribution will eventually be. If we find out quickly that our initial assumption was terribly off, and if the time of the annual adjustment is still far away, we may take action earlier.
- If we hire internally, the employee's new compensation will be determined the same way an outside hire's compensation. It will come into effect when they start in the new position.
- If our Collective Bargaining Agreement mandates changes on a specific date, these changes may be implemented at any date to comply with the agreement.
5. No predetermined salary ranges or compensation levels
Many companies base their salary decisions on a framework of some sort. A company might have levels like "Junior Engineer", "Engineer", and "Senior Engineer", and each category would have a salary range from minimum to maximum compensation. Typically, this type of framework is accompanied by descriptions of what kind of contribution is required for each level.
We consciously do not use such a framework. We've discussed it many times in the past, and some people in our team have communicated they'd prefer something like this. However, whenever we've attempted to design such a system, we've always given up quite quickly.
While we see the benefits of predetermined compensation levels, we think they would be outweighed by the downsides. We believe that any description we could assign to a specific bracket would always fail to capture all the different ways in which someone can increase their level of contribution to our company. One person might take on more responsibility by becoming a team or a guild lead. Another might become a stronger individual contributor. A third person might hold multiple different roles, working with various teams. The fourth could be exceptionally helpful towards others, constantly come up with great ideas for internal or external improvements outside their core domain, or in general, be knowledgeable about many sorts of things. These are all great ways to contribute.
We want people in our team to always do what they think is best for the company. Sometimes, that might not be written down in a predefined role description. By not putting people into boxes, we can assess each person as a whole. Given all the different aspects related to their level of contribution, what should their compensation be?
That being said, this is one area where things might evolve, especially when our company grows. While this is our principle today with a team of 24, things might look different for a team of 50 or 100.
6. Compensation is based on contribution
If we don't have any predefined ranges and levels, how do we decide salaries? The core principle is quite simple. We ask ourselves the following questions:
1. How important is the contribution of this person to the company?
2. How difficult (and expensive) would it be to replace their contribution if they left the company?
The latter part of this definition connects our compensation levels to the general market rates for different types of talent. We need to be able to hire great new people for all areas of our company. If we have trouble finding candidates in a specific field or profession, this might mean our offers are not competitive. We will likely need to adjust the compensation of the team members working in that area to ensure that we can keep the correct compensation balance when new people join.
One notable observation about this approach is that we don't take into account the personal needs of an individual when deciding their compensation. For example, one person might have very low costs of living while another very high. We don't think that should affect their compensation, as determining how much each person objectively needs is difficult. This means we also pay people the same, no matter where they live.
7. Every change in compensation is explained
Everyone at Sharetribe receives at least an annual basic raise mandated by our Collective Bargaining Agreement. Most years, some people get bigger raises than others. The motivation for these adjustments is to either improve the compensation balance within our team or the competitiveness of our compensation compared to other companies.
Whenever such decisions are made, they are announced to the entire company. The founders need to justify each bigger raise by explaining the reasoning behind it. Transparent salaries require transparency in the decisions as well.
In conclusion: Transparency fosters trust
At Sharetribe, everyone knows how much their teammates make and why. We try to minimize the role of salary negotiation skills while still making room for every team member to have their say. We want to ensure our salaries are competitive and fair and take into account the numerous ways individuals contribute to our mission. We want to encourage people to develop their strengths and think beyond their role descriptions.
We believe these principles help everyone be more effective in their work. They foster trust, security, and belonging – all imperative to helping people perform at their best and work together.
At the same time, we realize we'll probably need to make changes and adjust our decision-making as we grow and evolve. Also, as we're putting more effort into our internal diversity, equity, and inclusion work, new questions and perspectives around compensation can surface. Salary fairness was one of the key themes of Sharetribe's DEI effort in 2022. But while the practical steps in salary decisions might change, we don't see Sharetribe ever going back from the principle of transparency.