The Death of Salary Negotiations — Part II
How we calculate our transparent salaries at elbstack.
At elbstack, every employee who works for a client decides how much they want to earn. Thus, we completely removed unfair salary negotiations.
In our previous Post, you can read about the history of our transparent and fair payment system which is called elbsalary. This article focuses on the formula that obliges us to pay everyone the same salary for the same work.
Revenue
With elbsalary, we have different possibilities to generate revenue. The primary option is to work for our clients. Other, minor opportunities to earn money are through recruiting new colleagues or managing clients autonomously. They are meant as a small, financial thank you for putting in an extra effort.
The following example illustrates how we generate revenue on a personal level.
In most projects, we work on an hourly basis. To treat everyone reasonably, we calculate an average hourly rate based on all billable working hours. We then calculate the average hourly rate by dividing the last month’s revenue through all billed hours.
Revenue July: 125,000 €
Billed Hours July: 1,000 hAverage Hourly Rate: 125,000 € / 1,000 h = 125 €/h
Next, we multiply the average hourly rate with our personal billed hours.
Average Hourly Rate: 125 €/h
Personal Billed Hours: 120 hPersonal Revenue: 15,000 €
Because we need to create a financial safety net and finance the salaries of our students and team support, we created a graduate charge system which we apply to each revenue. We also re-invest some of the money into new product ideas.
The primary goal of elbstack is to empower employees to create new products and invest in their knowledge. Therefore, we want to make it less attractive to work too many hours just for the money.
The primary goal of elbstack is to empower employees to create new products and invest in their knowledge.
Up until €10,000 monthly revenue, we transfer 20 % into our financial safety net. From every Euro above the €10,000 mark, we assign 60 % to our financial safety net. Here’s an example with a personal revenue of €15,000:
Threshold One: 10,000 € * 80 % = 8,000 €
Threshold Two: (15,000 € - 10,000 €) * 40 % = 2,000 €Personal Profit: 8,000 € + 2,000 € = 10,000 €
The personal profit in this month is €10,000 — sounds like a superb month, right? Of course, there are costs which we have to consider before paying our salaries.
Costs
Like every company, we have different types of costs each month. We separate these into salary, personal expenses, and overhead costs.
Salary
One of the benefits of working at elbstack is that we can choose how much we want to earn. This gives everyone the opportunity to decide how much of their freedom they are willing to exchange for money. It also enables us to adapt our salary to our current living conditions.
One of the benefits of working at elbstack is that we can choose how much we want to earn.
Our salaries consist of a base wage of €3,333/month and an individual, freely selectable amount. The following example calculates the salary cost based on a selectable amount of €2,000.
3,333.00 € (Base Wage)
+ 2,000.00 € (Freely Selected Amount)
+ 1,333.25 € (50% of Social Security Contributions)
= 6,666.25 € (Salary Costs)You might now ask yourself, where €1,333.25 extra costs come from. These are social security contributions and contain legally prescribed health, nursing care, pension and unemployment insurance. In Germany, these costs are met in equal parts by the employer and the employee.
Personal Expenses
Through elbsalary, we can decide freely about work-related expenses. We can choose for example which notebook, which smartphone we’d like to buy and which conferences we want to attend. With elbsalary, we also cover travel costs, work-related hardware, our annual team retreat and our company flat which is just 5 minutes away from our office.
Overhead Costs
We bear overhead costs like our office space, private parking lots in our underground garage, team events or beverages together. These costs are divided equally through everyone. In the following example, let’s assume overhead costs of €1500.
Monthly Balance
After we determined our costs, we can subtract our salary, personal expenses and overhead from our profit. This results either in a monthly surplus or shortfall.
10,000.00 € (Personal Profit)
- 6,666.25 € (Salary Costs)
- 500.00 € (Personal Expenses)
- 1,500.00 € (Overhead Costs)
-----------------------------
= 1,333.75 € (Surplus)In this example, after covering all our costs and paying our salary, we generated a surplus of €1,333.75 which is added to our budget. Sounds great, right?
What we do with our money is entirely up to us.
We do this calculation every month, and the result will raise or lower your budget. What we do with our money is entirely up to us. It gives us the freedom to decide if we want to invest more of our time into our product ideas, extended vacations or new hardware. We can also pay ourselves a bonus which turns out to be quite helpful, for example when someone needs more money for an upcoming relocation.
This is the second of three articles about how we calculate salaries at elbstack. In our upcoming blog post, we will talk about the upsides, downsides, and challenges we’re facing with elbsalary.
