The Death of Salary Negotiations — Part III
Advantages and challenges of self-determined salaries.
This blog post is the third and last one of our series on elbsalary — our salary system at elbstack.
In the previous blog post, Lennart explained how we calculate the salary, which leads us to the topic of this post: What works well, what are downsides and what challenges we are currently facing.
Let’s start with the good things. Having elbsalary allows us to choose the salary we want. We don’t have to negotiate with our founders about it. We know how it’s calculated and can see on our own whether a specific salary is feasible and how much billable work would be needed for it. Having no negotiations helps us to have fair salaries which leave no room for envy, which could arise because we make our salaries transparent.
Deciding on our own how much client work we want to do, allows us also to choose how much we want to work at all during the week. We allow unlimited vacation because we believe that creativity and ideas can’t be forced. That’s why you never have to ask for permission to do something that is “unpaid” by its nature. You want to support that open source project? Do it. You want to experiment with some new technology? Go for it. You want to create a product? Start now.
All of this is possible because anyone is responsible for keeping their account balance in their favor. That balance is your budget to make work-related purchases and pay your salary and bonuses.
This high self-responsibility is the core principle of elbsalary. We expect everyone who’s working at elbstack to be able to work autonomously and make healthy decisions.
While this self-responsibility is a positive thing to me personally, others may feel it as a burden, which leads us to a downside of elbsalary. For some people, this degree of responsibility can lead to psychological pressure and fears. The risk associated with being directly impacted by revenues and costs is not for everyone. It is comparable to how not everyone will be happy with working as a freelancer.
Some people like to have a boss who is responsible for all of the unpleasant stuff and not to be involved in such things. We at elbstack however, want to take part in shaping our future. Therefore we were and still are all actively discussing the variety of aspects of elbsalary (and elbstack itself!). The discussions are another downside of elbsalary as we need much time for them, to find agreements and compromises. In another world, a boss would solely decide based on his viewpoint which wouldn’t work with our degree of responsibility. There is nothing worse than not being able to control what you are responsible for. With the way, we calculate revenues we tried to be as fair as possible.
Nevertheless, as our founders currently manually decide how to reward non-client work, this has the potential to feel unfair or biased. Even if it is just perceived as such, it still can result in bad moods. We currently have no rules in place for that because we wanted elbsalary to be as lean as possible. This will probably change in the future.
Although being relatively lean, it is still quite time-consuming to calculate the balances for each of us every month because we didn’t automate it yet and have to track each cost manually.
While automating this particular downside is possible, some other challenges can’t just be automated but instead have to be discussed and solved in the future.
As we currently average our hourly rate for everyone (when it’s in a usual range), we don’t differentiate between levels like junior or senior. At the moment everyone is okay with this and no-one raised concerns of feeling mistreated. However, in the future, there could be a more significant gap in the different skill sets of each us. We then may need to define levels for that, but for now, we are committed to helping less experienced colleagues to grow and learn instead. And we’d like to keep it that way.
On a similar note, it is almost impossible to have a yearly salary above 100k€. However, as we only average the hourly rate up to a certain point, it is possible to earn such a salary if one would work for a very high hourly rate and do specialist work (e.g., machine learning). But for management positions, such a salary is currently not possible. However, we don’t need managers for the way we organize our work. At least not yet. And for software engineers, we fit well in the standard range of salaries paid in Hamburg, which spans from 40k€ to 70k€ per year.
Besides skill levels and high salaries we also have to account for auxiliary work that needs to happen in any company. We currently distribute the costs for people that don’t work directly for customers but help us with things like billing and accounting evenly on all others. Doing so could feel bad to some people if they are under the impression that they can’t control this expense and think that they “pay” the salary of someone else. On the other side, if the two kinds of people scale up evenly, it may not be a problem, as it is just another expense that stays almost constant. It could even be put into some bucket to make more clear that this is something that is essential.
Another challenge is the way of handling it when someone’s account is in the negative. While this is no problem in the short-term, in the long-term it could be problematic if the person is vital to elbstack or works for own projects that elbstack wants to pursue. In the case of working on personal projects, the person gets shares of the product or company if it is successful, which accommodates the risk taken. However, currently, it is not defined how far in the red a balance may be to be acceptable, and under which circumstances.
Adoption is fundamental to survival, and we make ourselves no exception of that. Nothing about elbsalary is set in stone, and we are still continuously learning.
We are looking forward to solving the challenges and downsides as they become too painful to bear and appreciate the upsides for the time being.
We’re happy to have created a salary system that
- makes salary negotiations obsolete
- lets us choose our salary
- treats us all equally (no matter the gender or origin)
- allows us to organize our work flexibly
- is transparent about all costs and earnings
- encourages learning and entrepreneurship