Could self-set salaries be the future of wages? According to BBC Radio 5 Live’s Wake Up to Money programme, it’s highly likely.
As the BBC News site explains, [1] the show recently spoke to a clutch of tech startups that had each adopted ‘pick-your-own-pay’ schemes, whereby staff members award themselves pay rises in consultation with multiple colleagues.
The report interviewed 25-year-old Cecilia Manduca, who works for GrantTree – a firm that helps companies secure government funding, and allows all of its 45 employees to choose their own salaries. Following a shift in her responsibilities, Manduca gave herself an additional £7,000 per annum, boosting her pay to £37,000.
“I felt a lot of doubts asking for that raise,” she said. “It took a lot of talks with other people. I was aware that my job had changed. I was aware I was going way beyond my targets. I knew that from a rational point of view I deserved that higher rate. But I had a lot of self-doubt and I felt sort of greedy because there’s always a stigma – a sense you should feel happy with what you have. When I spoke with my colleagues internally and asked for advice, the advice they gave me was that yes, I did deserve it and I was worth it.”
She pointed out: “The colleagues who give you feedback make sure you are not underselling yourself and that you are getting rewarded for as much as you are worth. That doesn't really happen in a normal company, where you negotiate for your salary and you are trying to get as much as you can, but the other person is trying to give you as little as possible.”
Approaching the issue from a management perspective, Charles Towers-Clark – CEO of software firm Pod Group – noted that staff occasionally quote unrealistic figures. “It's not people being greedy,” he said, “it’s a lack of understanding. A fairly junior person didn’t comprehend that the salary increase she was asking for was too much. She was asking for a 50% increase on her salary, which was far more than the role was worth. It was her decision, but I told her: ‘You can take it – but if you become uneconomical, or your value is not justified, then that will only end one way’. She reduced what she was asking for after that.”
Addressing the BBC report in his regular column at Real Business, Pimlico Plumbers boss Charlie Mullins explains that a recent salary transparency experiment at his firm “made a real difference”, and praises the tech sector for sparking an innovative trend.
“Whether it catches on,” he writes, “is another matter, and like all new things, there will always be issues that’ll need to be ironed out. There’ll be some people who still won’t be comfortable or confident about discussing their worth or wages. Does that mean they’ll be left lower down the salary ladder? Like anything that fundamentally impacts on people’s livelihoods, this will need to be handled very carefully.” [2]
Are self-set salaries a refreshing solution to an old problem, or a potential administrative nightmare?
The Institute of Leadership’s former head of research, policy and standards Kate Cooper says: “It has been extensively well documented that we have a gender pay gap – but that’s just the tip of the iceberg in terms of the full range of pay gaps that typically exist within organisations. It’s widely acknowledged that institutional racism, and other forms of discrimination, routinely manifest themselves as pay gaps. So, when we consider the notion of staff helping each other to set their salaries, we need only look at Carillion – and now, indeed, Thomas Cook [3] – to see that, thanks to factors such as mutual regard, groups of peers may be tempted to overestimate each other’s contributions, and the value they create for their businesses.”
On that basis, Cooper notes, “what I’m advocating for is far greater transparency across the boards about what people are paid, and a much tighter rationale for explaining why people receive the salaries they do – issues that market benchmarking would undoubtedly help to address. But in the cold light of day, any scenario in which you go and ask colleagues whether you’re worth a few more thousand pounds per year, in full knowledge that when they come and ask you a similar question, there will be a sense of expectation – or even obligation – in the air, is inherently flawed. There’s a quid pro quo about it that I think would be very difficult to even pretend to ignore.”
She adds: “Until the workplace is a much more inclusive environment, and until we’re much clearer about what we are rewarding people and why different pay gaps exist, this sort of initiative is probably more appropriate for smaller businesses. In that context, you’re closer to your clients or customers. You’re closer to your performance and profit figures. You can demonstrate more readily the ways in which you are having an impact in your role. But as businesses grow and become more complex, there’s ample scope for all sorts of distorting factors to arise in the field of self-set pay.”
For further insights on the themes raised in this blog, check out the Institute’s resources on managing performance
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