The issue with compensation decisions#
Compensation is a difficult and often heavy topic. In many organizations, it is the source of a lot of politics. It can be difficult to decouple it from feelings of worth, and it often creates a perceived hierarchy between people, just because of salary differences. Seeing another worker who has a higher rate than ourselves, when we feel we do comparable work, can cause friction, conflict and resentment.
And yet, we don't think there is a way to have a truly equal and fair approach to set everyone’s salary – all approaches inevitably make some people feel undervalued in some way.
A few remote companies, like Gitlab, try to solve the equality issue by having a salary calculator based on location, taking into account the fact that there are disparities in salary and cost of living across the world. But location is hardly a fair criteria – if two people produce the same thing, it shouldn’t matter which country they live in, and there are plenty of costs that are the same for everyone (computers, online services, travel, etc.). So having the same “standard of living” will actually depend as much on the person’s preferences as the location, and it just perpetuates world inequalities to say that someone in India can’t be paid more than someone in the US.
Another approach would be to set a unique salary for everyone. However, the issue then becomes: which salary should we choose? If we align on the highest end like Silicon Valley-type salaries, we instantly become non-competitive on the international market, and lose most of our clients, or our sustainability. If we align with the average world salary, we end up with half of the team feeling underpaid, or won’t have anyone in the team from parts of the world.
And it also still leaves us with differentiating depending on experience, which brings its own set of politics, as well as often ending up having to compare apples to oranges.
OpenCraft's approach to compensation#
The way we approach this isn’t perfect either, but we have tried to strike a balance:
On one side, we acknowledge that we are all human, and that it would be really hard to avoid the usual negative feelings that come with individual merit-based raises, or in comparing our individual rates.
On the other side, we care a lot about fairness and openness. So we opted to be transparent about the process itself and its decision mechanisms, without publishing the individual compensation rates. Individual rates are considered private information, set by each team member for themselves when they join within the constraints of the process.
We have also designed the process around the principle that OpenCraft should stay out of taking the decisions setting individual compensation values for each member, as much as possible, and keep the process systematic and open. We believe this is more important than the numbers themselves, and critical to help avoid the usual politics and worth perception issues.
How hourly rates are set#
Remuneration is based on time spent working, as a hourly rate:
Candidates decide on their hourly rate themselves when applying.
OpenCraft has a range of hourly rates that we can accommodate - we filter out candidates that we can’t afford, but we don’t negotiate the hourly rate at all, we simply hire candidates with the rate they set. The range is kept confidential, to avoid having all candidates simply picking the upper bound: we want candidates to provide a middle ground, ie a rate which they think is fair and not below what they think their work is worth, but have an incentive to keep it reasonable, knowing that if it's too high the candidature will be filtered out.
We never change or renegotiate the rate set by the candidate after they have been accepted, aside from two systematic mechanisms for raises, which apply to the team as a whole: minimum hourly rates and team-wide yearly raises.
Note: hourly rates are applied to all the time a member spends working (including overtime), but only the time actually spent working (exclusing breaks, vacation, etc.). So the rate must be chosen in a way which factors in all costs, including taxes, vacation and benefits, including insurance for sickness or unemployment.
Minimum hourly rate#
We want to make sure that everyone in the team has an hourly rate that allows living a comfortable life, and that nobody can lowball themselves to the point of not being able to live a happy life because of their compensation.
So there is also a lower end of the range of hourly rates that we will accept, ie a minimum hourly rate. A candidate asking for a rate that is too low will still get accepted, but will get their hourly rate raised to the minimum hourly rate upon confirmation as a core team member
The way we handle raises differs from the usual method of having individuals going to a manager and asking for a raise. Instead, they are applied to all team members systematically, without distinction or negotiation every year, whenever they have been part of the team for the full previous calendar year. The hourly rates are bumped by a percentage amount, based on the overall company results.
This is a way to ensure that everyone benefits from the company’s improvements without having to do individual negotiations for each person. Individual negotiations could be good for some of us who can negotiate well, but it could be bad for those who aren’t. It would also tend to make feelings of competitiveness rise up among us: individual performance (or rather, the appearance and publicity of one's performance) would become a factor in getting better raises than other team members. We like the team's collaborative atmosphere, and prefer to not create a reason to compete against our coworkers.
We also try to make these raises significant, whenever the company's results make it reasonable. It is often x2-3 what would be applied in other companies, with annual raises often in the 5-10% range (though some years it can also be 0% when the results aren't good). There are several reasons behind giving larger raises, to everyone:
Since everyone gets them, without having to negotiate, it doesn't put those who aren't good at negotiating or who shy away from asking raises at a disadvantage over the others, while still providing a raise matching or exceeding what those who know how to negotiate would be able to obtain.
The significant raises ensure that even someone starting with the minimum hourly rate but who sticks around, will eventually come to exceed the average international hourly rate, after only a few years.
We are building a team for the long haul, and want to reward those who choose to stay in the team. Too often, companies low-ball raises by taking advantage of the inconvenience and perceived difficulty of changing jobs. As a result, it rewards those who are willing to switch jobs more often, as it is then one of the only ways to get proper raises. This isn't good for anyone -- not for the companies who end up with a higher turn-over, not for team members who have to go through the job search grind to get proper raises, nor for those who choose to stick with a job or a team they like at the expense of the progression of their remuneration.