Colin Howe

5 February 2019

Startup CTO - Making Salaries Transparent

The fourth part in my series on being a Startup CTO.

I’m a big fan of transparency within my teams. I believe that it shows trust and enables people to make smarter decisions as they have more context to make them. For me, one of the pinnacles of trust and transparency is enabling people to see the salaries of their co-workers (including their managers).

There are a lot of great posts out there that describe various transparent salary systems, but I haven’t seen many that describe the journey to getting these systems rolled out with minimal problems. What follows is the description of how I rolled out a transparent salary scheme in an engineering team of 15 people.

The Motivation

I had been considering making engineering salaries transparent for some time and kept finding reasons not to do it - being busy, other bigger problems to solve, the usual startup stuff. It all came to a head when one of the engineers, Ed, came to me and said: “I have no evidence for this, but, I feel that I’m underpaid relative to everyone else”. This statement shocked me as I knew that he was one of the best-paid engineers. I wanted to understand why he felt like this, and I asked Ed to draw up a list of everyone else and what he thought their salaries were compared to his in £5k increments.

What he produced was, in hindsight, obvious. Ed was a frugal guy. He didn’t buy fancy clothes, didn’t eat fancy dinners and cycled to work every day. The engineers Ed felt were earning more than him were the ones that lived a more lavish lifestyle. In one case, someone he felt was earning £20k more than him was earning £20k less. The person he was comparing himself to was an accomplished photographer and loved going out to fancy restaurants and taking beautiful pictures of the food.

Ed was the final push I needed to move transparent salaries to the top of my list of projects.

Getting buy-in

The CEO

Before jumping in at the deep end, I spent some time talking this over with the CEO. We discussed the pros and cons of going transparent. We were both generally keen to be as transparent as we could with the team, and this felt like a natural next progression. There were, however, some initial concerns:

We came up with plans for all of these scenarios. Most issues were solved by trying to pay fairly and competitively. If we were struggling to retain or recruit someone then either we weren’t competitive (and needed to increase our salaries across the board), or we had to stick to our plan, as paying one person the ‘wrong’ amount would cause upset across the rest of the team. This latter point is valid even without a transparent system, people talk about salaries and take guesses at what others earn.

The CFO

The conversation with the CFO was very similar to the one with the CEO, but they were not as motivated by the move towards transparency. The CFO was far more concerned with the predictability of our engineering budgets and ensuring we were smart with our money. I informed our CFO that the likely outcome of this process was an initial jump in salaries to level out pay grades, then a switch to reviewing salaries every 6 months to ensure that we were always competitive.

The initial increase was less of a problem than I imagined. The CFO understood that the market for engineers was getting more competitive and being able to retain them was important. It did help that I had identified a few engineers as potential flight risks, they had improved significantly and were overdue for a raise.

The switch to reviewing salaries every 6 months was probably the biggest hurdle for finance. We eventually agreed that at the start of each year we would agree a budget for increases in the coming year, then I could phase in those increases as required for the team. If I then needed to exceed that budget, I would have to talk to the board and justify that increase in expenditure.

The team

After getting buy-in from our CEO and CFO, I then took the idea to the team at one of our team meetings. I made it clear that I hadn’t yet created a grading system, but, I wanted to understand how they felt about the idea of creating a more thorough and transparent system of salary setting. The resounding answer was “this sounds good if you get it right, but, you probably won’t”.

None of the engineers had ever worked in an environment with a transparent salary scheme. All of the engineers were used to a system where they asked and campaigned for their pay rises, with no visibility of whether they were fair in comparison to the other members of the team.

It must have caught the interest of some of the engineers, I started receiving links to posts describing other companies’ attempts at salary transparency; often with commentary from other companies about how they set up their scheme. Often the engineers would tell me what was good or bad about the schemes.

The system itself

I’m going to skip a detailed discussion of the system itself as it is described in a previous post. It is sufficient to say that the system comprised of an evaluation of approximately 20 different skills and the person’s strength at that skill with 4 different grades of strength for any skill.

Calibrating the system

After devising the rough framework, I sat down and evaluated all the team leads skills and then had them do the same for their engineers. This evaluation allowed me to start spotting patterns and use these patterns to form the various grade boundaries. E.g. an engineer must have most skills demonstrated at a level of ‘self sufficient’ to progress to mid-level.

Getting ready

The calibration process highlighted a few discrepancies. Some people were being paid less than they should. Some people were being paid more than they should be. For the people that were being paid less, they got a pay rise in advance of the system being made visible to everyone.

For the people that were being paid more I had to come up with a justification. I found a solution in the concept of an “uplift”. The engineers that were being paid more than they should be were being paid these rates for historical reasons with regards to specific skills being hard to find - e.g. javascript engineers that can build complex web applications were scarce at one point. We then created an uplift for these skills and said anyone that demonstrates they can do this will also receive the uplift and as the skill becomes less scarce the uplift will decrease. At the time of my departure from the company all of the uplifts had been removed as people progressed and learnt rarer skills.

For the actual rollout of the scheme, I sat down with each person individually, explained their new grade and why they were at that grade. I explained the system to them and what their salary would be. I then took the time to answer any questions from the engineer. After this, I then herded everyone into a room and put the spreadsheet of salaries on the wall for everyone to review. I was nervous that despite me being comfortable with the numbers someone would be upset. I planned that if anyone was upset I would attempt to understand why and resolve to fix any unforeseen issues.

What happened? Nothing. It was one of the biggest anti-climaxes I have ever experienced. Everyone looked at it. Everyone saw that they were in the right place and surrounded by people that they felt were peers. Everyone understood the system and its fairness. Everyone was happy.

After the rollout

After going transparent, I had a few interesting things happen.

The highly paid offer

Shortly after implementing the transparent salary scheme I got approached by one of our engineers, Jess. Jess had received an offer from her previous company to come back to them. The salary was approximately 25% more than the salary we were paying. This salary was a huge increase and representative not just of how good Jess is, but, also of specific knowledge that Jess had of the previous company and the specific value she had to them.

Jess explained this offer to me and then instantly said: “I know you can’t change my salary due to the salary scheme, but, I wanted to talk to you about my future here”. Straight away, money was off the table. We then had a productive conversation about how Jess wanted to lead a team and get real experience with leading more junior engineers. I hadn’t realised how strongly Jess wanted to lead a team. I explained to Jess that although there weren’t any opportunities at that specific point in time, the company was growing, my target was to hire another 5 engineers and build another team in the near future and that she’d definitely be up for consideration for a leadership role when the role became available. I was also honest with her. I explained to Jess that I couldn’t promise this role to her even though I felt that she would be great for it. I wanted her to understand that I wouldn’t make a promise I couldn’t 100% keep. I told her that the opportunity she had at her previous company was an excellent salary and not likely to be matched elsewhere. This was a conversation where I laid out facts, was transparent about my goals and my views of her and the company.

Having transparency and honesty in our history meant that Jess trusted me that we’d consider her when the time came. Jess decided to stay with us as she understood the potential for long term growth with the company was worth more to her than a 25% increase in salary.

Roughly nine months later an opportunity arose, and Jess was made a team lead. Eighteen months further on, Jess was still with the company and a very successful team lead.

I believe that had we not had a strict and transparent salary scheme this conversation would have played out very differently. We would have likely got hung up on the salary and not spent enough time focussing on what Jess really wanted long term. Jess would have likely left for the pay rise. Critics of these systems argue that I could have just said Jess’s salary was not negotiable until pay review time and still had a productive conversation with her about her career goals. This is partly true. However, Jess would not have known whether I was simply saying that her pay was not negotiable or that it was true. Jess would also have not known whether her pay rise was fair and the rest of the team might eventually have found out. Transparent systems make it obvious to her what the situation is.

Finally, an accomplished negotiator would argue that I could have discussed salary and discussed her future and came to the same end. I would argue that salary is such an emotive subject that once it is on the table it is hard to get away from it.

The keen young engineer

We had a bright young engineer who pushed the salary system. Fred was keen to work his way up the grades.

Every time we did a skills evaluation with Fred, he would argue that he had demonstrated skill X to the level required and would provide evidence of it. Every time Fred would ask for clarifications about what skill Y on the next grade meant and what he had to do. This was a great conversation to be having. Fred was hungry and was pushing us to help him grow as fast as possible. As a direct result of this, Fred has grown his skills at an astounding rate, and his grade has improved rapidly in line with this.

Conclusion

Rolling out a transparent salary system need not be hard. Talk to your CEO and your CFO to get their buy-in. Talk to the team to ensure they’re happy with this level of transparency. Take the time to carefully calibrate the system and if all goes well you’ll be greeted with a contented quietness when everyone finds out what their salaries are in relation to everyone else.

Discussion