Let’s talk about money!

Normally, it’s the employees who seek out their managers on a more or less regular basis and ask for salary increases – or, alternatively, salary increases or bonus payments are defined, by reference to the achievement of personal goals, during annual staff review meetings between manager and employee.

Let the team decide...

In my daily work helping organizations in their transformation process, I accompany many teams on their way to agile working, and to collegial or shared leadership. These innovative models for collaboration result in responsibility being delegated to the teams, mostly in form of collective team responsibility. Against this backdrop, defining individual targets linked to bonus payments or salary increases no longer makes any sense. Accordingly, agreements on team-based targets are introduced to replace individual targets – to make sure that team spirit is not affected. This begs the question as to how and on which basis individual salary increases should be determined, and by whom. 

Well, the decision which criteria should be used to determine salary increases has to be made by each organization or each department for themselves, depending on their respective tasks and strategy. The following criteria may be used: the employees’ personal development and their willingness to learn, their technical expertise, their contribution to team development, for example in terms of building mutual confidence, etc. 

The question who should determine salary increases is very simple to answer, in my view: those who are able to make such an assessment and together share the responsibility for the sub-target – the direct co-workers. Companies such as Kartenmacherei (Celebrate Company) or Seibert Media have defined for themselves individually how this might work (see links below). flowedoo’s Thorsten Heintke called this process “salary poker.” This process – in whatever form it is conducted – always involves some form of peer feedback from 2 to 7 co-workers, on an either anonymous or open basis. What this process requires in any case is a culture of transparency and feedback. 

A culture of transparency is necessary because people proposing a salary or a salary increase must be familiar with the company’s results and accounts. Because it’s a given that salaries cannot be determined without considering the company’s financial situation. Moreover, this approach also involves transparency with respect to the other co-workers’ salaries. 

At the same time, team members must be able to deal with feedback since the peers provide their reasons why they proposed a particular salary. Even if these reasons are anonymized, people must accept the feedback. 

The approach where employees decide on salary increases for their peers within the team is an appropriate strategy especially for agile organizations or companies based on collegial leadership, and this is where I expect that a culture of transparency and feedback has already been established.

Two comments as an aside:

  1. Transparency in terms of salaries should be getting into people’s heads meanwhile, as there are two current rulings (one from the German Federal Labor Court and one from the European Court of Justice (ECJ)) that strengthen the right of employees with respect to transparent and equal pay. (see links below: Federal Labor Court and ECJ strengthen fair pay, by Sebastian Müller – Perspektiven 3 2021, DFK)
  2. More money does not really increase motivation as long as it’s sufficient to cover the cost of living. So, people really shouldn’t make such a fuss about pay rises and salaries. Many studies have proven this. (see “Beyond Money” by Frank Weber – Perspektiven 3 2021, DFK). Daniel Pink also substantiated this claim very impressively in his book “Drive.” Rather than money, he names Mastery (outstanding development opportunities), Purpose (doing something that has a meaning) and Autonomy (being self-directed) as elements that increase intrinsic motivation.

In a nutshell: The idea that employees make a decision on their co-workers’ salary is brilliant. I am convinced that, in doing so, we come a step closer to fair pay. Moreover, feedback given among peers is automatically integrated in this process, and there is less of a decision-making burden weighing on a few executives. At the same time, transparency and fairness are strengthened throughout the organization. Do any counterarguments come to my mind? Perhaps. It takes some courage and above all patience to develop a suitable process iteratively for the respective organization together with the entire staff.

This text first appeared in my newsletter 'Innovation on Wednesday'. It is published every other Wednesday. For subscription click here

Further reading:

Issue 3 2021 – Focus topic: Salaries – Perspektiven – Magazin für Fach und Führungskräfte (German magazine for professionals and managers)

Agility as a game changer for salary negotiations – Thorsten Heintke

Make an end to salary negotiations: The employees of this company decide on their co-workers’ pay – Franziska Telser

When employees are those who decide on their salary for themselves – Buchreport: New pay – alternative working and pay models – by Sven Franke, Stefanie Hornung, Nadine Nobile

A German agile company – Celebrate Company

Another German agile company – Celebrate Company

Andrea SchmittInnovationstrainerinAm Mittelpfad 24aD 65520 Bad Camberg+49 64 34-905 997+49 175 5196446
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