Our Simple Salary Policy

This post is part of a series about our VERY FEW company policies. Read this intro post for some context.


Given that we have different people all around the world and that we are 100% open books internally (i.e. everyone knows how much everyone else makes), it helped to come up with a salary policy that was both simple and fair.

Here's what I came up with:

You are paid a little better than someone with your same job in your geographical area.

The goal of this policy is to remove salary as a something employees think about. Basically, people at Balsamiq should know that they are paid well compared to their peers. In other words, Balsamiq employees are not going to find a better paying job somewhere else, unless they are willing to move. And if they are, we're open to that and we'll adjust their salary accordingly (both up and down).

Once a year or so, I review the local averages from sites like careers.stackoverflow.com, salary.com as well as the Italian contracts and look at how much each employee could get if they got a similar job in their same geographical location now, and we adjust each person's salary accordingly. It's subjective, but we discuss it together one-on-one and come up with a figure that makes both of us happy (my dad tought me that it's only a good deal if both parties walk away happy about it).

I agree with Dan Pink that carrots and sticks don't work for a company like us. I want salary to not be part of the equation, people should do their best work not for a raise, but because they want to. Again, see Dan Pink's book: people want Autonomy, Mastery and Purpose, all things I try to provide as an employer.

This is the base salary. To participate in the company's profits, we also have a generous profit sharing program as well.

That's it! What do you think? What's your company's salary policy? How would you improve ours?

Hope this helps,
Peldi for the Balsamiq Team

Comments (22)

  1. feel free to delete this comment.. just wanted to say.. “I WANT TO WORK FOR BALSAMIQ NOW!!” hehe jokes aside.. i think its a really awesome way of doing things. wish more companies would do it..

    not too sure how you would work out salaries “for the area” is there arent any “sites” around listing positions / rates.

    the other problem comes in.. humans are greedy / self centered by nature. if a college i work with, for eg.. outputs half of what i do a month (not necessarily talking quantity here.. quality aswell) but since hes in a developed country with insane cost of living he gets more than me.. in a low cost area in a developing country.. i might find that a bit unfair? how do you go about solving those problems? hire more people from india? :P (lol altho i hear alot of the code stuff is being moved to south africa these days). sadly people arent that good at thinking all things through. base figures are what “matter” to our brains he-gets-10-times-more-than-me-but-hes-a-lazy-sod

    depends on the people.. and company i guess.

    k in other news.. you really are making me jealous now :(

    William
  2. The policy means nothing really.

    The question is do you accurately portrait how good or bad an employee is? And can you accurately portrait how good or bad the people are expected to be on stackoverflow etc, are.

    Almost certainly the answer is no.

    Now you might be a completely generous fellow and your employees might do well.

    And so in the end, it’s still just completely subjective on your part, and not at all determined by policy.

  3. By the way, are you hiring or plan so in the near future?

  4. Hmm,

    I don’t know if I would be confident with that. Assuming I’m sitting in eastern Europe and do a lot of good development work and get paid $local*1.1 and then there’s the guy from Idaho who talks all the day long about a TV show but earns 3x of what I get … my morale would be pretty low.

    Not that you hire TV show junkies but that “I am doing so much and the others do nothing” feeling is very subjective and irrational and can poison someone’s mind pretty fast.

    Being open books is awesome … but on salaries I’d prefer some secrecy. Just for the peace of mind. If I don’t know the ugly details I can pretend everything was OK :)

  5. Is this really uncommon? Paying remote workers what their peers in the area make is definitely not uncommon (and allowing them holidays that make sense for their cultures rather than where ‘headquarters’ might be).

    Having open salaries is less common, but frequently people have pay grades that are common knowledge so knowing the exact amount may not be typical, knowing a range is.

    To the person worried about the “TV” watching person in Idaho — their manager should be fired as well as the employee, as clearly neither are paying attention. With good employees, you shouldn’t need to generally worry about this type of behavior and the amount of output they produce should be similar (and again, if not, why did the less efficient person get hired in the first place?).

  6. I think this doesn’t solve the salary problem. There will always be a few companies who pay 10% to 20% over salary.com.

    There will always be some employees who press hard for salary. They will quote a few companies and claim that they are the average, when they aren’t. They won’t trust Salary.com/PayScale, or will point out a few companies paying well above that.

    It comes down to a few employees who will be annoying pushing hard on salaray. The above doesn’t help solve that. By saying, “It is subjective, we will work it out, we won’t stop until both are happy”, then it tells all employees to push.

    The solution is to make it objective rather than a policy making it more and more “loosy goosy”.

    Bryan S
  7. Wow, that is a terrible policy. You are effectively letting other companies decide what your employees are worth. Why should the judgement of your potential competitors matter when you are deciding how to compensate your employees? You are also failing to take into consideration the *value* that the employee provides to your firm.

    What if you have a star performer in a low wage region? Are you seriously going to refuse a salary increase just because of where they live? Are you willing to lose that person and endure the risk of hiring a sub-optimal replacement if they decide to leave? Ridiculous.

  8. Smart simple policy. There is no better salary data set than from your peers.

  9. Back in India, I used to work for one of the best companies with great openness and fairness in all their dealings, which included the policy of no firing, no kickbacks to government ever even if it meant loosing business, individual freedom, training and empowerment, shared workspaces, opendoor to company heads, stock options, etc. But when it came to salary, they couldn’t apply these standards, simply because salary differentiation became a key source in retaining talent.

  10. Interesting, salary is a very touchy subject for a lot of people as many of the comments here illustrate.

    In my experience, when employees are apt to become most unhappy with their salary (myself included) it is because they unhappy with some greater aspect of their job in general. The example of the lazy employee who gets paid more but whose performance struggles is a comparison one is only apt to make when he feels a lack of control over his own performance or the role that his performance plays in the overall success of the company.

    That is a dissatisfaction with the work environment more than with the employee’s salary, proven by the likelihood that an increase in salary will not ultimately resolve the issue for him. In other words, he may be temporarily satiated by the increase, but as that novelty wears off (which it rapidly does) his dissatisfaction will manifest in other ways. Perhaps trying to get the other employee fired or setting his sites now on the manager in charge of the lackluster employee.

    The policy Peldi describes in this post is one designed to take the issue of salary off the table as a factor in performance – a measure discussed by Dan Pink in his book. With an open, simple and clear salary policy it is difficult for an employee to point to his pay as an excuse for poor performance.

    But that is too much focus on the negative. Since the employee is presumably comfortable with the policy and salary he has agreed to, his mind is free from the burden of wondering whether or not he is being paid appropriately, and thus able to be more focused on completing tasks and devising creative solutions to problems as they come up.

  11. When this difference is fractional it does make sense. But otherwise it is not straight forward.

    If I am from say eastern Europe, a lower pay would mean it would take me thrice as long to afford the same car that my collegues in western Europe. If I were from India, with the kind of real estate prices and the lack of breathing space in the cities, I would definitely be having a much worse quality of life.

    It is not to say that paying “marginally” above market rates is unfair, after all people live where they are because of lack of options or opportunities or reasons of their own making.

    But claiming that you would remove “salary” as a barrier holds no water. When a startup working on a shoe string budget pay 1/3 (ie $local_rate*1.1 as Leon says) the message is clear that they simply cannot afford to pay a better salary. On the other hand when a well funded start up cannot pay half the salary that they pay someone from the developed world the message is clear that they have low expectations from me.

    chandra
  12. While imperfect, this approach is superior to the standard performance appraisal practice.

    –mj

  13. I love the open books policy. It forces an employer to have a reasonable and fair salary structure.

  14. Open book or closed book doesn’t really matter to much as people will make assumptions on what others make comparatively anyway. Fundamentally, the salary should be determined by contribution. Arguably, your salaries are determined by market averages and from someone who has now worked in 4 different markets within 3 different companies, not my preference. I’d prefer to earn my keep and know where I can push to make more money rather than have the market average dictate my worth.

    My thought:
    - Be Transparent on base levels to setup friendly co-opetition
    - Identify the right “add” motivators and their value to your company
    - Align those add motivators with employee demand – benefits, time, money, profit sharing etc.

    This will require companies to know what their key factors for success are at the different levels and help align the right employee skill sets with the company.

    In otherwords, make it less subjective with an individual employee and more about driving towards a common goal. Address individual needs with alignment to the appropriate key contributors to success.

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  16. Most of the comments I just read were doing their math wrong. If you’re in a place with a lower standard of living, your costs are going to be lower as well. for example, milk might cost someone in CA $4-5/gal but only $2-3 for someone in Texas (or something i don’t know or care). That also goes with most restaurants, housing, etc.

    So while you think it may take you 3x to buy the same car as someone else. They may be paying 3x what you are for housing for something smaller (I have a yard and 400 more sqft than my old roommate, now in CA, and pays 3x what I do).

    One thing I think most people haven’t considered with this system is that if you have a problem with your pay, just move to a higher paid location. Only you prevent yourself from doing that. Honestly, I would love the freedom to know that I can move locations and be 10% above my (assuming) avg peer. But not everyone wants to move. And this system isn’t for everyone.

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  19. The only issue I see with the approach is the average part. When you look at salary data it usually contains statistics about what you would earn when average, below average and above average.

    By paying little more than average you are basically telling your employees they are little bit more than average.

    Do you see your company as being average and composed of average talent?

    The ideal and maybe impractical approach would be to hire only people with a certain proficiency, which I’m sure you are doing, and paying them for that level of proficiency above market average.

    On the side of the developer you need to understand that your salary needs to be competitive for what you bring to the table. You cannot sit in India and earn a New York salary. You will be replaced by another person from India, or China, or South Africa, etc.

    Please give the first poster his wish and delete his post, its embarrassing.

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  21. I like it. Of course the actual process is a bit more complicated, but it’s a perfect example of setting a simple goal and letting the employees use their creativity to implement it.

    Bob Rodes

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