I'm one of those people who has a really hard time with the idea of having left money on the table. When I'm in foreign countries, I love to haggle in the markets, but no matter how big a reduction in price I get, I always walk away wondering if they're laughing at me behind my back because I still paid 10x the going rate.
Anyway, working for a large corporation with an opaque salary system was an exercise in frustration. I moved to SF and took a job at a midsize company making what I thought was a very decent salary. I was just out of college and making more than my parents, so I thought I was doing really well. However, after a bit of digging and research, I discovered that the "going rate" for my position was actually 20 - 30% higher. Ugh.
I can totally see the appeal of a transparent salary system, especially when you throw profit-sharing into the mix.
"I always walk away wondering if they're laughing at me behind my back"
They're probably not laughing at you. They are either confused because the foreigner got a decent price out of them, or grateful you didn't hold on for a lower rate. It's the ones that don't haggle that they're laughing at...
Answer: "Because we don't call it 'negotiating a raise', we call it 'applying this formula'."
Two immediate problems with the formula and one problem with the concept.
First, "scope", factor 2 in the formula, can be external to the employee. It's in Spolsky's interests to hire people who "could" manage multiple projects if given that responsibility, but the demand for those people inside Fog Creek will tend to be lower than the demand for lower-scoped responsibilities. His formula thus does one of two things: it incentivizes him to hire less talented people --- even when he may want a buffer of talent inside the company --- or it creates a totally subjective ranking system where 10 people are qualified to lead a project, but only the "favorite" does.
Second, "skills", factor 3 in the formula, is also subjective. That he's coded it in a chart doesn't change the fact that the "skills" spectrum is basically the line over which every salary negotiation is fought anyways.
Which leads to the general critique of this, that coding and regimenting salary negotiation does nothing except code and regiment salary negotiation. OK, so Fog Creek is transparent about the behavior they want to incentivize. But so what? The real world still creeps in and subverts this system:
* "I'm capable of leading this project, but I'm never getting a lead role because 5 people with seniority are always going to take the next available slots."
* "I was given this task to complete, but it was poorly specified, and so my output didn't contribute to company success."
* "You'd be ranking me at a higher skills level if you put me on a project that would give me exposure to new technology."
* "You'd be ranking me at a higher scope of responsibility if you'd just recognize that my team lead is a moron."
All the same pathologies seem to remain intact in this system.
This seems spectacularly unlikely given Joel's other writing and the fact that he's running a profitable company, the profits of which substantially depend on the quality of staff he hires. Saving 1% of payroll and giving up any substantial "edge" in development is a bad trade, and regardless of your opinion of Joel, I suspect he's smart enough to know that.
All the same pathologies seem to remain intact in this system.
All of those same pathologies sound to me like pathologies with the people not the system, and the solution is to just recognize that people who can navigate themselves around small obstacles are actually more valuable. People who complain at year-end about why they couldn't acheive their maximum potential need to be steered into a mindset where next time they find a speedbump to drive over or around it, not to stop and complain about the uneven pavement.
It's in Spolsky's interests to hire people who "could" manage multiple projects if given that responsibility
I'm not sure that's true.
I've never been a project manager, but I have had a job where I would sit idle for weeks at a time because nobody had anything for me to work on. I eventually quit.
So I would expect that someone who could manage multiple projects at Fog Creek, but is only managing one, would not be happy there, either, even if he/she were paid as much as the people who actually were managing multiple projects.
And, yes it's good for there to be a buffer of talent, but that buffer would ideally be spread across the whole company--every person who is managing one project should be able to manage one project and contribute to another--not concentrated in a few stars.
I went to a Fog Creek open house year before last with this pay-scale transparency in mind (Joel had talked about it in an article about 6 months beforehand) and nobody I spoke to had any idea what I was talking about.
Trying to run a company by formulas like this rarely works. And a 'take it or leave it' approach to negotiating compensation (yes, you are negotiating, even if your stance is not to) would seem to encourage hiring of employees who either don't know their own value in the marketplace or, worse, are looking for a place where there is less pressure to perform.
It might make sense for a non-profit, but if the company is for-profit, it makes sense for the employee contracts to reflect that fact. Of course it's incumbent on you as manager to pay people what they really are worth, and not play favorites for emotional or other random reasons.
"Take it or leave it" is the best price that you're going to get from a given party. It's unclear why one would prefer a lesser price.
It's also unclear why taking a "take it or leave it" offer vs some other metric implies "don't know value" or "looking to coast".
Then again, I'm pretty sure that a significant number of employees at non-prifits aren't volunteering, so if a non-profit wants to keep them, it has to be competitive wrt their compensation.
While some/many employees at a non-profit may be volunteering,
Years of experience is only sometimes correlated to employee value. So, including it in an inflexible formula to determine level will cause mis-levelling. Exceptionally talented staff with few years under their belt will be levelled too low and more experienced staff who aren't so capable will be levelled too high.
Supplemental point: IANAL but I think it would also be illegal to factor years of experience into salary calculation in the UK.
Read the article, particularly the table at the end. After 1 year of experience, the years of experience make no difference to your rank, except for people with an "average of scope and skill" of 1 (out of 6).
What a silly rule. This 'equality rule' is why union shops have some of the worst productivity levels in the industry and why union workers have zero incentives to innovate and become more productive. Under this plan, people have no incentives to give more and work harder. Inevitably, the equilibrium for this type of a system is the productivity of the weakest worker.
If you look at the chart on the second page, it's clearly not "communism". There's a "scope and skill" component to salary level. If I want to make more money there, I increase my skill, and push to get more responsibility. It's just saying that people with the same skill and responsibility get paid the same.
"Under this plan, people have no incentives to give more and work harder."
There are some people ("salesy" types particularly) whose performance is motivated almost exclusively by money, but I find this to be the exception.
As was mentioned in the article, hard work tends to come from high job satisfaction. Compensation is only one component of that, and arguably not the most important, provided it's not unfairly low.
Finally, if you're right and Joel's wrong, how do you explain Fog Creek's success? Do you consider them an outlier? If so, can you give a counter-example of when you've seen this system fail? Fog Creek is strong evidence of the efficacy of this approach, while you seem to be relying on nothing more than your opinion.
Well, unlike a union shop, people can be fired. And we're talking about (50? 100?) people that are chosen very selectively from a nationwide (worldwide?) pool. It's not a 20,000 worker steel plant.
I think you need much more flexibility than this. I've worked for several companies with this kind of scheme and had to fight and juggle with the system and the scales to be able to reward my staff appropriately. It is very easy to end up with a middle-of-the-road performer, who has a broad skill set and much experience and is therefore very highly valued by a formula. It is extremely frustrating to have to pay them more than someone with less experience and fewer skills on paper, but who is perhaps making a tenfold greater contribution to the company.
Rigidity in the formula itself is not the only problem. I've encountered rigidity in how to apply the formula. I was responsible for a team of engineers in such an organization a few years back. They were a fantastic bunch altogether, but we had a real star who transferred in. She'd been barely raised above the starting graduate scale, despite making a pretty significant contribution to the company as a whole. When I discovered this, I set about re-assessing her ranking based on the company's formula and basically worked out that her salary needed to double - it had to jump about 3 pay bands. My request was turned down - it was apparently too big a jump! I was left wondering if I should ask her to stop doing some of the things she was doing - like mentoring new employees, since the company wasn't prepared to pay her for it. I didn't stay there, and neither did the star engineer.
I think in a smaller, less bureaucratic organization perhaps these schemes have a better chance of working, as long as the formula leaves you enough flexibility.
Is employee A working late nights because he or she is working hard, or to fix bugs introduced by careless coding the previous afternoon, or because for every hour physically at the office, 45 minutes is spent reading HN? It's hard for the manager determining salaries to tell the difference.
More likely is that in negotiation system, employee B gets a pay rise because he is good negotiator and employee A loves his job but is less confident so doesn't even ask for a pay rise, so gets nothing.
I makes sense as long as you are not paying less than $90k/year senior level web developers. Does anyone know how much is a Fog Creek Software senior developer salary?
This system can only work if there are non-monetary benefits to working for the company, like a stimulating work environment or increasing independence with increased demonstrated skill...
As someone that runs a profitable company I can tell you right now that my company would a) not be able to hire really awesome people and b) lose all the better guys as a result of this policy.
I have worked for a university which, under budget pressure, allocated for < 1% average annual raise, but STILL put all the effort into review to spread it out so some got .7%, some got .8% and so on. What I remarked from this was: all the pain and anxiety with none of the benefit.
More recently, the company I work for seems to have moved away from an emphasis on raises and towards an emphasis on bonuses. Somehow for me this is psychologically infinitely superior. I actually can't remember the time series of my bonuses. I suppose if the company was stupid, it would report my bonus as "your bonus is 20% lower than last time" or "your bonus is 30% higher than last time." But they just report the amount. Contrast that with salary changes, which in my experience have always been reported to the employee as a percent change, just in case the employee was not thinking that way anyway.
What these guys are doing appeals to me very much. The real changes in salary come from moving up and down the ranks, which is a public process even though not transparetly linke to salary changes generally. A super simple salary system is very appealing to me. Give me my feedback in significant (>1% effects) chunks, and keep me from doing the equivalent of staring at 16 indistinguishable brands of soap wondering how they picked Tide for me.
In an Inc column a while ago, Joel mentioned that his offer for new grads is $75k/year. Not sure how that scales with experience, but Glassdoor might give you some idea about going rates in the NYC area.
As a sidebar, I've discovered that the cultural reluctance to discuss wages is not shared with other countries. In China, for example, it's quite common to compare salaries.
Maybe this works for Joel. I find it funny though how performance does not get included in his calculation.
Some employees are more productive that other employees and get more done therefore they should be payed more. An employee with less skills can still be more productive that an emloyee with more skills.
The reasons CEOs make millions is because their performance is directly measurable in how well their company did that year.
"The reasons CEOs make millions is because their performance is directly measurable in how well their company did that year."
They make millions because they negotiate a contract that says so, irregardless of performance. They're able to get that contract due to the perception that with them leading, the company will make more money than if they weren't. It's essentially a bet the company is making on the CEO, because even if the CEO drives the company into the ground the contract is still in place.
You have to consider what being more productive translates to. In this case, since we are talking about software, lets assume that being more productive means that you can implement more features of a similar complexity at the same level of quality compared to the guy sitting next to you. Assuming everything else equal between you two, you would expect that you would be paid more. In Joel's model, the only way for this to be accounted for is scope. Since you can produce more features you are now responsible for more features. Assuming that this increase of scope is enough to move you up to the next grade, you would have a higher salary. Otherwise, it could be accounted for with your bonus.
But what if you could implement twice as much features, but you required additional over site to manage those features. You have just created additional work for someone else. Before your additional productivity can be utilized, someone else has to help you convert it to something more usable. Depending how needed that other person is, your increase in productivity could result in a net lose of productivity for the team as a whole.
When talking about productivity, you need to be specific in what you mean, because productivity is hard to measure and quantify.
Very good article. I'd also like to mention that as a libertarian I strongly desire to see efficient free markets and those require INFORMATION.
Attempts to hide information are almost always market manipulation.
In the case of secret salaries, the market is being manipulated for the benefit of employers and employees who are very good at salary negotions in addition to their other skills.
One thing I liked about the military is that we were paid based on time in grade and rank. I at least knew I wasn't being cheated out of something someone else was getting.
[+] [-] ryanwaggoner|17 years ago|reply
Anyway, working for a large corporation with an opaque salary system was an exercise in frustration. I moved to SF and took a job at a midsize company making what I thought was a very decent salary. I was just out of college and making more than my parents, so I thought I was doing really well. However, after a bit of digging and research, I discovered that the "going rate" for my position was actually 20 - 30% higher. Ugh.
I can totally see the appeal of a transparent salary system, especially when you throw profit-sharing into the mix.
[+] [-] flatline|17 years ago|reply
They're probably not laughing at you. They are either confused because the foreigner got a decent price out of them, or grateful you didn't hold on for a lower rate. It's the ones that don't haggle that they're laughing at...
[+] [-] tptacek|17 years ago|reply
Two immediate problems with the formula and one problem with the concept.
First, "scope", factor 2 in the formula, can be external to the employee. It's in Spolsky's interests to hire people who "could" manage multiple projects if given that responsibility, but the demand for those people inside Fog Creek will tend to be lower than the demand for lower-scoped responsibilities. His formula thus does one of two things: it incentivizes him to hire less talented people --- even when he may want a buffer of talent inside the company --- or it creates a totally subjective ranking system where 10 people are qualified to lead a project, but only the "favorite" does.
Second, "skills", factor 3 in the formula, is also subjective. That he's coded it in a chart doesn't change the fact that the "skills" spectrum is basically the line over which every salary negotiation is fought anyways.
Which leads to the general critique of this, that coding and regimenting salary negotiation does nothing except code and regiment salary negotiation. OK, so Fog Creek is transparent about the behavior they want to incentivize. But so what? The real world still creeps in and subverts this system:
* "I'm capable of leading this project, but I'm never getting a lead role because 5 people with seniority are always going to take the next available slots."
* "I was given this task to complete, but it was poorly specified, and so my output didn't contribute to company success."
* "You'd be ranking me at a higher skills level if you put me on a project that would give me exposure to new technology."
* "You'd be ranking me at a higher scope of responsibility if you'd just recognize that my team lead is a moron."
All the same pathologies seem to remain intact in this system.
Curious as to what I'm missing.
[+] [-] sokoloff|17 years ago|reply
This seems spectacularly unlikely given Joel's other writing and the fact that he's running a profitable company, the profits of which substantially depend on the quality of staff he hires. Saving 1% of payroll and giving up any substantial "edge" in development is a bad trade, and regardless of your opinion of Joel, I suspect he's smart enough to know that.
All the same pathologies seem to remain intact in this system.
All of those same pathologies sound to me like pathologies with the people not the system, and the solution is to just recognize that people who can navigate themselves around small obstacles are actually more valuable. People who complain at year-end about why they couldn't acheive their maximum potential need to be steered into a mindset where next time they find a speedbump to drive over or around it, not to stop and complain about the uneven pavement.
[+] [-] sethg|17 years ago|reply
I'm not sure that's true.
I've never been a project manager, but I have had a job where I would sit idle for weeks at a time because nobody had anything for me to work on. I eventually quit.
So I would expect that someone who could manage multiple projects at Fog Creek, but is only managing one, would not be happy there, either, even if he/she were paid as much as the people who actually were managing multiple projects.
And, yes it's good for there to be a buffer of talent, but that buffer would ideally be spread across the whole company--every person who is managing one project should be able to manage one project and contribute to another--not concentrated in a few stars.
[+] [-] umbrae|17 years ago|reply
It was pretty disappointing.
[+] [-] danbmil99|17 years ago|reply
It might make sense for a non-profit, but if the company is for-profit, it makes sense for the employee contracts to reflect that fact. Of course it's incumbent on you as manager to pay people what they really are worth, and not play favorites for emotional or other random reasons.
[+] [-] anamax|17 years ago|reply
It's also unclear why taking a "take it or leave it" offer vs some other metric implies "don't know value" or "looking to coast".
Then again, I'm pretty sure that a significant number of employees at non-prifits aren't volunteering, so if a non-profit wants to keep them, it has to be competitive wrt their compensation.
While some/many employees at a non-profit may be volunteering,
[+] [-] Edinburger|17 years ago|reply
Supplemental point: IANAL but I think it would also be illegal to factor years of experience into salary calculation in the UK.
[+] [-] blackguardx|17 years ago|reply
[+] [-] drothlis|17 years ago|reply
[+] [-] nickb|17 years ago|reply
Sorry but communism just doesn't work.
[+] [-] df07|17 years ago|reply
Also see http://www.joelonsoftware.com/articles/fog0000000070.html for a discussion of why Joel doesn't want to have incentive pay.
[+] [-] Hamhock|17 years ago|reply
[+] [-] r00k|17 years ago|reply
There are some people ("salesy" types particularly) whose performance is motivated almost exclusively by money, but I find this to be the exception.
As was mentioned in the article, hard work tends to come from high job satisfaction. Compensation is only one component of that, and arguably not the most important, provided it's not unfairly low.
Finally, if you're right and Joel's wrong, how do you explain Fog Creek's success? Do you consider them an outlier? If so, can you give a counter-example of when you've seen this system fail? Fog Creek is strong evidence of the efficacy of this approach, while you seem to be relying on nothing more than your opinion.
[+] [-] pchristensen|17 years ago|reply
[+] [-] nradov|17 years ago|reply
[+] [-] ars|17 years ago|reply
If I buy from them, I'm going to negotiate for a lower price.
[+] [-] charltones|17 years ago|reply
Rigidity in the formula itself is not the only problem. I've encountered rigidity in how to apply the formula. I was responsible for a team of engineers in such an organization a few years back. They were a fantastic bunch altogether, but we had a real star who transferred in. She'd been barely raised above the starting graduate scale, despite making a pretty significant contribution to the company as a whole. When I discovered this, I set about re-assessing her ranking based on the company's formula and basically worked out that her salary needed to double - it had to jump about 3 pay bands. My request was turned down - it was apparently too big a jump! I was left wondering if I should ask her to stop doing some of the things she was doing - like mentoring new employees, since the company wasn't prepared to pay her for it. I didn't stay there, and neither did the star engineer.
I think in a smaller, less bureaucratic organization perhaps these schemes have a better chance of working, as long as the formula leaves you enough flexibility.
[+] [-] _b8r0|17 years ago|reply
Or is it that employee A wouldn't get a pay rise because then employee B would have to get one?
[+] [-] smokinn|17 years ago|reply
[+] [-] sethg|17 years ago|reply
[+] [-] rythie|17 years ago|reply
[+] [-] WebTom|17 years ago|reply
[+] [-] jballanc|17 years ago|reply
...my guess is that's why Joel gets away with it!
[+] [-] _b8r0|17 years ago|reply
[+] [-] lliiffee|17 years ago|reply
[+] [-] Raplh|17 years ago|reply
More recently, the company I work for seems to have moved away from an emphasis on raises and towards an emphasis on bonuses. Somehow for me this is psychologically infinitely superior. I actually can't remember the time series of my bonuses. I suppose if the company was stupid, it would report my bonus as "your bonus is 20% lower than last time" or "your bonus is 30% higher than last time." But they just report the amount. Contrast that with salary changes, which in my experience have always been reported to the employee as a percent change, just in case the employee was not thinking that way anyway.
What these guys are doing appeals to me very much. The real changes in salary come from moving up and down the ranks, which is a public process even though not transparetly linke to salary changes generally. A super simple salary system is very appealing to me. Give me my feedback in significant (>1% effects) chunks, and keep me from doing the equivalent of staring at 16 indistinguishable brands of soap wondering how they picked Tide for me.
[+] [-] geebee|17 years ago|reply
[+] [-] teuobk|17 years ago|reply
As a sidebar, I've discovered that the cultural reluctance to discuss wages is not shared with other countries. In China, for example, it's quite common to compare salaries.
[+] [-] dawie|17 years ago|reply
Some employees are more productive that other employees and get more done therefore they should be payed more. An employee with less skills can still be more productive that an emloyee with more skills.
The reasons CEOs make millions is because their performance is directly measurable in how well their company did that year.
[+] [-] sangaya|17 years ago|reply
They make millions because they negotiate a contract that says so, irregardless of performance. They're able to get that contract due to the perception that with them leading, the company will make more money than if they weren't. It's essentially a bet the company is making on the CEO, because even if the CEO drives the company into the ground the contract is still in place.
[+] [-] rgoddard|17 years ago|reply
But what if you could implement twice as much features, but you required additional over site to manage those features. You have just created additional work for someone else. Before your additional productivity can be utilized, someone else has to help you convert it to something more usable. Depending how needed that other person is, your increase in productivity could result in a net lose of productivity for the team as a whole.
When talking about productivity, you need to be specific in what you mean, because productivity is hard to measure and quantify.
[+] [-] run4yourlives|17 years ago|reply
[+] [-] biohacker42|17 years ago|reply
Attempts to hide information are almost always market manipulation.
In the case of secret salaries, the market is being manipulated for the benefit of employers and employees who are very good at salary negotions in addition to their other skills.
[+] [-] andreyf|17 years ago|reply
[+] [-] unknown|17 years ago|reply
[deleted]
[+] [-] raffi|17 years ago|reply
[+] [-] bluelu|17 years ago|reply