Compensation and incentive processes in Teal organizations are challenging the standard management practices in different ways. The processes include methods on deciding who deserves how much salary (self set salary, peer reviewed salary or combination of the two), how to incentivize people in the right way (incentives can easily distract people from their inner motivation) and what are reasonable salary differences within the team, or even within the owners (consider the gap between the lowest and the highest earning team member/owner).
Due to the absence of bosses, peer-based processes and self-set salaries are practices that help decide how much everyone earns. I’ve gathered here a few approaches explained in the Reinventing organizations book by F. Laloux to give you ideas on how to get going.
HolocracyOne’s approach (ranking your colleagues in a survey):
- On a scale of -3 to +3, this person contributes more or less compared to me
- On a scale of 1 to 5, this person has a good basis to evaluate me
After putting together a few algorithms, you get a handful of salary groups, dividing people by their pay rate (experience, knowledge, hard-working -> higher salary group vs. more junior, less experienced -> lower group). This is a simple and fair, easy to understand approach. Group effort makes it a more fair reflection of ones position in the company, compared to having just one person, the boss, in charge of the decision.
The Morning Star approach (self-set salary + a feedback from a salary committee):
Once a year, everyone in the team suggests their own salaries to a volunteer “salary committee” and can back up their suggestion with a feedback form received from their peers. It’s quite common to ask for a raise just according to the increase in cost-of-living. But it’s possible to suggest a higher percentage raise, if one believes they have taken on more responsibilities, participated in projects and got a good evaluation from their peers. If one is not happy with the decision made by the committee, they can organize a meeting to explore each others views in more depth to reach an agreement. If problems occur, just like in the advice process, the coach or an outside facilitator can be asked for help to reach a solution.
Realize! approach (open discussion about salary levels included in quarterly meetings):
On top of the traditional recap of the past quarter (key figures, events, occupancy) everyone takes turns sharing their perspective about the contributions one has done during the last quarter, including:
- The work one has done
- The projects one has lead
- The support one has given to others
The colleagues/partners who are listening can add forgotten contributions, give praise or ask questions to gain more insight about everyone’s duties. After doing the round, you can have a moment of silence (or listen to a song, have some fresh air etc.) to let the topics marinate a bit. Think about the compensation and how to distribute the earnings from last quarter with everyone involved. Anyone can then suggest an idea how to proceed which is then either used as it is or, more likely, discussed and refined. Ultimately, the discussion is not about money. It’s about the higher purpose of making everyone feel their contribution is acknowledged and valued, and that the inner (me) and outer (others) perspectives are in line. It’s a practice of openness, trust and vulnerability, tapping into the deeper levels of listening and trust.
Incentives vs company-wide bonuses (profit sharing)
Incentives can distract people from their inner motivation and therefore are not always the best option in a Teal organization. Given that everyone gets a salary that meets their basic needs (as Maslow’s hierarchy of needs argues; self-actualization is possible only when basic needs are met), I have noticed that meaningful work and the possibility to express one’s talents and calling in work, many times matters more than incentives and bonuses. It feels great to get a reward after finishing a successful project, whether it’s a bottle of wine or some cash, but it should not be the only reason for giving one’s best for the project, It’s actually quite tragic if a person needs to be lured and tricked into jumping through hoops just to get their job done. For further information, have a read or listen to Daniel H. Pink’s, Drive: The Surprising Truth That Motivates Us, about motivation and counterproductive incentives used in many organizations.
Some Teal companies even give company-wide bonuses. They share part of the earnings with their employees, either by giving everyone the same fixed amount, or basing it on a fixed percentage of their salary. Profit sharing promotes belonging, validates the team and strengthens their ownership of the venue they work at. There are several ways to give a piece of the pie to your employees as Josh Sapienza explains in one of his Hospitality Helpline posts here. Yes, I know, another link to click and read, but it’s all in the name of expanding your horizon so you can have more platforms to follow and material to base your decisions on.
Acceptable salary differences (reduce the compensation inequality)
The practice of meritocracy is possible in a Teal organization as long as it’s done in a reasonable way. A higher salary can be earned for example by gaining expertise and taking on responsibilities, but if the boss or owner makes 350 times more than an average worker (not even the lowest paid worker), the disproportionate salary amounts are ludicrous. Some self-managed organizations have CEO’s salaries capped to a maximum of for e.g. 12 times the lowest salary (not the average or the medium) in the company. When there is a chance to increase salaries, it should be distributed to the lowest rank first. This would be in the benefit of the owner as well, since the raise in the lowest salary raises their cap limit too. So, boost the lower salaries and keep the higher salaries in check.
Overall, wage differences are not a bad thing as long as they are reasonable, explained and transparent for everyone. A new hire can start with a lower salary, move on to a higher salary level and finally be accepted to the quarterly distributed profit pool after gaining enough knowledge and expertise. When it comes to the salary differences regarding the CEO’s or owners, I believe something similar to the dual entitlement theory (a little something I learned while studying revenue management in NHTV Breda UAS) can be used to understand it. The theory of “dual entitlement” basically says, that consumers evaluate a price with the belief that they are entitled to a fair price while also realizing that the company is entitled to make a reasonable profit as well. I believe that with the same logic, if an employee gets a fair salary they also understand that the owners should get a fair return of their investment. To consider it from a different angle, while the owner is absolutely entitled to receive compensation for their efforts, the profits should not come from the backs of their workers. Remember, every little helps. If with your actions at work you can save money, you should do it. A rising tide lifts all the boats.