Individual Compensation in Flat Organizations: Solving the Puzzle

Updated: May 19



You have a budget raise available to offer compensation adjustments for your team, but your company operates in a flat organization… Who will decide which members get a raise and how much each one should get? Are the complicated processes of Self Set Salaries and Salary Formula the only ways of deciding on compensation? How can we allow for the team to make this decision in a transparent and fair way?

This dilemma is faced by companies which operate in a flat organization when it comes to individual compensation. Collective decision-making, shared responsibility over the actions and results, fluid communication, transparent processes, member and team autonomy and a keen sense of collaboration are all valued. Then comes the question: without a boss, who will decide?

Traditional compensation models are top-down, against the essence of flat organizations. Having a manager say who gets raises makes no sense. Gathering the whole team in a room to decide who gets what, Money-Pile-style, will only work for small teams, and becomes slower and more complicated as the team grows. 360º reviews become a popularity contest, suffer from appraisal inflation and require calibration by a manager.

Well, what to do then?

The two best-known methods for solving the compensation issue in flat organizations are Self-Set Salaries and Salary Formula. As we've seen in this article, Self-Set Salaries are a myth. Jurgen Appelo’s Salary Formula is made up of items considered important by the organization for setting salaries. A good practical example of this method comes from Buffer, a company which uses two variables in its formula, the position and the cost of living:

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Discussing a formula which meets the organization’s criteria, satisfies people and operates within realistic figures is like opening a can of worms. And still, the formula will never contemplate every person's singularity. Worse still, the formula relies on the person's designated "level". Who decides each person’s level? Who decides who gets a level promotion? We’re back to square one.

Both methods above are complicated, illusive and time-consuming. According to Payscale research, the greatest levels of satisfaction towards the company come from employees who get raises without having to ask for them. So the following question arises:

“How to pay people in a transparent, fair way, through a participative process, with a simple method, taking a minimal amount of time from the team?”

You must be wondering whether a method like that exists. It does, and it’s called Team-Set Salaries (TSS). It allows for flat organizations to carry out the compensation process completely in accordance with its organizational model.

TSS allows for each team member to appraise each colleague's contribution, also specifying the degree of certainty of how well they know their work. Appraisals stem from the many interactions that take place within an organization. Percival is the tool that implements this method and, at the end of the round of appraisals, applies an exclusive algorithm to balance them all out, and produce the fairest possible "slicing" of the compensation budget. That result is a collective expression of how each person’s work is recognized within the team.

If you also wish to transform the compensation process at your company and make it more coherent to its values, try out Percival, and if you need help or want to better understand how Team-Set Salaries can help your team, click here and book a talk with us.