Piloting a transparent pay formula

2/5 posts reflecting on experiments in doing work differently

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In 2022 we at Huddlecraft trialled a transparent pay formula for our core team, having spent 2021 using a flat salary structure. Here’s how it went.

The pay formula as we trialled it in 2022 👆

💡 Why did we decide to do it?

• In 2021 we used a flat salary structure. This worked OK for the stage we were at. But, it began to feel limiting in several ways. For example, a flat structure doesn’t allow for different levels of responsibility or experience to be recognised. It makes it very difficult — or almost impossible — to create a sense of progression year-on-year.
• Anneka attended a session about ‘reimagining pay’ hosted by CIVIC SQUARE, Dark Matter Labs and Outlandish. They shared their approaches, including transparent pay formulas. We discussed whether this approach might work for us and decided to pilot it in 2022.
• We felt a lot of values alignment with the idea of wage as a tool for thriving, not only for the individuals being paid, but also for the organisation paying them. A wage should be enabling and put neither individuals nor organisations in the position of being extracted from unfairly or harmfully.

🎥 How did it go?

• As a team we discussed which inputs we wanted the pay formula to take into account (e.g. location, years spent with Huddlecraft), and then I started prototyping and modelling a formula using excel, to explore how different approaches would play out with different constellations of team members and different scenarios.
• Once I had developed some options we looked at them as a team and decided which felt good enough to try and to review in practice. You can see our current iteration of the formula on our careers page.
• Amongst other things we wanted the formula to recognise years experience and years spentwith Huddlecraft, and we wanted to use the living wage (and London living wage) as a base. This meant that our previously flat pay structure changed pretty significantly when we began our pilot in January 2022, with each of us now earning a different salary. Everyone agreed this felt fair and there were no objections.
• These changes also increased our overall outgoings quite a lot, at a time where we were also investing in other changes (e.g. company structure, name change, new branding). It felt like the right choice, and it felt like backing ourselves, but it was a lot of pressure on Huddlecraft — and therefore on the team — to cover these outgoings.
• It was interesting to go through a recruitment process in late summer 2022 — using the formula instead of giving a salary or salary range. It’s not conventional and therefore it raised some questions. But this felt positive overall because we trusted that those who were curious and open to the idea would be likely to be open to doing other things differently as well, and therefore likely to be a good cultural fit.
• Whilst recruiting we did speak to some people who decided not to apply because the formula didn’t calculate a high enough salary for them, but this also happens with stated salaries or salary ranges. What felt great was the openness. It felt like the formula took certain types of behind-the-curtain biases and power moves off the table, whilst still opening up (rather than closing down) the conversation.
• We also began to experiment with a version of the formula for freelancers (kudos to Kate Weiler for walking through this with me). This did not feel as straightforward, which shouldn’t be surprising, because a freelancers relationship to an organisation is different (by definition). What feels important is that the same underlying principles and values apply for freelancers as for the team, and that there isn’t a big inequality gap. So I’d like to take forward this experimentation in 2023 to get closer to something that feels good.

🎓 What did we learn?

• I think the formula approach feels more natural with core team members because their salaries are fixed costs, whereas freelancers are variable costs. But this learning is evolving and I’d love to hear from others who have experimented in this area.
• Some further iteration is needed to make sure we don’t bias ourselves in our decision making. For example, with the current formula, years experience (every year of someone’s life after the age of 18) is a really significant part. Currently we wouldn’t be able to afford to make hires beyond a certain level of life experience! This clearly isn’t how we want to do things, so we’re now making some changes.
• We also need to make sure we’re balancing what we are offering for each year spent with Huddlecraft with a reasonably competitive incentive to join the team to begin with!
• By engaging more with the idea of pay, I’ve found it really interesting to observe how much of the discussion revolves solely around a one-way street. How much can the individual get from the organisation? There are lots of reasons that the discussion leans in this direction, many to do with where power is held and by who. And in many cases I’m sure this is the conversation that needs to happen (national strikes perhaps). However, in small organisations, I think we’re actually fortunate to have the opportunity to have a more holistic conversation. One where we genuinely attempt to discuss mutual thriving, and where the needs of the individuals and the organisation are discussed together. To me it feels like part of the work we need to do to shift our economy. If we’re saying we want a ‘new economy’ but we still celebrate individuals extracting as much as they can without thinking about the needs of others — it doesn’t add up.

👉 How will we take it forward in 2023?

• Starting the year by developing and agreeing an iteration of the formula that builds on our 2022 learnings. Calculate resulting salaries for each member of the team.
• Agree some ideas for continued exploration of using the formula with freelancers.
• Have a discussion about how we used our wellbeing budgets in 2022, and whether we need to build in a regular check in to keep surfacing the idea that a small portion of the salary is intended for wellbeing.
• Establish a little more structure to the annual review process for the whole formula — and ensure this is reflected in employment contracts.
• Read this article by Alanna Irving from Open Collective, all about how their team sets their own salaries (with the help of a calculator).

🤔 Remaining questions?

• There’s a question we haven’t tackled yet, about how to recognise needs that may not be included in the formula. For example, caring responsibilities. How can we ensure that there is ongoing space to address things ommitted by the formula? As I’m sure we could iterate it forever and it still wouldn’t meet absolutely everyone where they’re at.

🍭 Tips for others who’d like to do this?

• Look at plenty of other formulas and approaches, and chat to people who are doing it. Note what you like, and what feels less resonant for your organisation.
• You might want to aim to create something that is simple enough to include a formula in a job ad without it becoming totally overwhelming.
• Discuss with your collaborators or team and brainstorm everything that you’d like your formula to take into account, e.g. years experience, level of responsibility, living wage, years with the organisation, caring responsibilities, etc.
• Start drafting models. Create several drafts and then run through multiple scenarios, using these scenarios to help you iterate your drafts. How would this model work if we had X constellation of people in the team? What would it mean if you had an older average age? If everyone stayed with the organisation for 10 years?
• Try and break your model! Ask team members or others to try and spot the holes, gaps, weaknesses and limitations. You may feel you don’t need to address all of them straight away, but better to be aware.
• Once you think you have a draft that is sufficiently good and safe to pilot, agree together to proceed. Establish a trial and review period. Be clear on expectations around this.
• Take care of the nitty gritty. Update contracts or policies where needed, seek expertise and advise if it’s missing.
• I heard about the idea of ‘lemon squeezing’ sessions recently, where people can bring tensions, irritations or conflicts for a group to work through together, without them needing to feel like they’re being negative. It could be a good idea to pre-schedule a couple of these during your trial. If all people have to say is good things then great, but there may be tensions and teething issues.

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