When practicing Holacracy, employees don’t have a function title but a unique package of roles. How do you determine how every person should be compensated?
Holacracy® is one of the possibilities to give structure to self-organization, among other things by introducing roles. This is guaranteed to trigger the issue of reward. And as with more issues, Holacracy does not answer it, but it does offer the tools to do something with that trigger.
We distinguised two ways to measure. First, internally that is the comparison with colleagues. Externally, that is a comparison with what is happening in the market. Both are relevant. In this article we look at how self-organizing companies deal with the compensation topic.
Learning in the organization: assessing and rewarding separation
Self-organization only works if people bring tensions into the organization. So when they see that something could be better at the service of the purpose of the company.
When they energize that tension, the organization learns. That is why you want employees to feel free to introduce tensions so that “learning” is supported in the organization. Feeling free is possible if there is trust and safety. For this it is important that an assessment is determined as objectively as possible and not – as in often traditional organizations – by one person who does not even see your work. In addition, the organization must be able to explain at any time why who earns what, so that differences are easy to understand. That clarity and the consistent application of the same model; that is the basis of trust.
Case from the past: why honoring differences is important
Before he started Energized.org with Koen Bunders, Diederick Janse set up a company with three partners. Diederick says, “At Realize! we simply divided what was in the pot. That first felt very appropriate and enormously liberating. We really experienced this as a nice decision. However, as time went by, there were differences that were not honored. We thought it was more powerful to talk about differences.
Then we decided to meet once a quarter and investigate the differences. An objection could be that someone thought he was not getting enough. But in practice it was more often that you got too much or that you thought someone else got too little. Suppose you really say that you want more, you had to stand for it yourself. In the end everyone felt really seen. At the end there was always a big hug, especially by honoring the difference. This is very achievable at team level, but with a larger organization this can quickly become difficult. It is nice to see how large organizations are now taking on that challenge and also successfully. “
Case: Earn badges at Zappos
Zappos is the best known Holacracy organization and they also wanted a new system. That’s why they developed a badges system at Zappos. You can compare that with the badges that scouts get. So as your skills develop better you can earn more badges. Until, for example, you finally have shoe polish 1, 2 and 3.
Zappos has recorded their badge system in a Holacracy app. An app shows exactly what you could do in Governance – so which roles to add with which expectations – to work with badges. This app can be viewed by everyone.
Model Baarda as a basic model for self-organizing companies
Many organizations opt for a model based on that of Dutch compnesation expert Rolf Baarda. “Your reward must match the valuation that you get,” says Rolf Baarda, he is a reward consultant and has developed his own reward system. And yes, that is called the Baarda model. The model is completely transparent and contains 8 profiles. From low to high they are the Helper, Basic Strength, Allrounder, Professional Specialist, Professional, Generalist, Leader and Strategist. The model is not designed for self-organizing companies but for traditional hierarchical companies. It has been helpful for lots of of Holacracy driven companies with just a few hacks.
Within the 8 profiles there’s also a division such as “junior”. For each profile, the organization makes a clear description of visible behavior.
This model classifies employees based on the problem-solving capacity and the visible impact.
Your reward therefore depends on the degree of complexity of the problems you solve in the work that you have shown.
The Baarda model is based on safety. Because you end up in the category where you feel comfortable, you are in control of your own development to continue. You also see exactly what you have to do to go one step further. As Rolf Baarda says “everyone wants to be a captain on their own ship”.
Model Baarda in self-organizing companies
Various holacratic organizations have used Model Baarda. Often not in the original form, but with changes such as feedback from colleagues instead of feedback and classification by a manager. We explain a number of models in the cases below.
Case: Spindle and Voys: problem solvers with impact
DevHouse Spindle and Voys have hacked the Baarda system so that it fits in better with the self-organizing nature of the organization. They were the first to work together with Rolf Baarda.
The most important change they have made to Baarda’s existing model is that it is not a personnel officer or someone from HR who decides in which role you fit, but peers; direct colleagues. You choose a group of direct colleagues who have a clear picture of how you work.
During an extensive interview with a questionnaire and a facilitator, it is discussed in which Baarda role you fit best based on the impact you have had in the last period. An important aspect during these conversations is that you can only rely on visible work. So if you have plans and talks, but if that is not (yet) visible in your daily work, then that will not affect your pay scale.
On the Devhouse Spindle website you can read more about it in the article compensation in Holacracy: setting salaries without managers.
Case: the value model of Enreach
At Enreach a compensation framework was launched in 2018. The ‘Value model’ rewards the contribution of the employee in an honest and market-conform manner and at the same time enables a discussion about growth. This model was introduced at the part of the company that was previously called Voiceworks. This business unit consists of 300 employees in Almere, Malaga and Belgrade.
Anita Klaver from the Talent Lab explains, “Compensation is now based on Value profiles “. This model is derived from the model of Rolf Baarda. Every employee has done a self assessment with the profiles and there have been peer reviews around every employee.
In the end, the “contribution” of each employee is determined. This assessment is the basis for the salary, but also a starting point for formulating learning objectives.”
The compensation model is fully transparent for every employee, and consists of the following components:
- A salary for contribution related to the Value profiles (visible in an external benchmarked salary house)
- An annual “fixed” increase, which is determined in relation to the inflation correction and the available budget due to the business performance of the year.
- Flexible remuneration & recognition during the year, ie ‘one offs’ that are given to an employee or a team and usually have a ‘non-financial’ character (eg a receipt or dinner).
- Holiday bonus.
- “Throughout the year, employees or peers at the Talent Lab (HR department) can indicate whether they think they have grown. Then a new review can be done. With this new model we have released the annual salary round. What we do in a flexible way throughout the year is to reward the behavior that suits a good contribution. ”
Case: Luscii ‘Compensation Developer’
Joris Janssen has the role “Compensation Developer” at Luscii. Before Holacracy was introduced, they had already started an alternative salary model at Luscii with the aim of building a fair model. At Luscii, they don’t want the salary to be the most important motivator for people.
Joris says, “We wanted to get the subjectivity out of it as much as possible. So we started with 4 levels for developers that also included a loyalty component that related to the number of years you have been working there.
Another challenge we face is that it is difficult to lower salaries. It can happen that someone suddenly/ has much less responsibilities due to role changes etc. We have not yet found a good solution for this.”
The basis of the salary is now formed by one of the 6 levels plus the loyalty percentage and extras such as travel costs and telephone allowances.
When Holacracy was introduced, people had different roles, so more than just Developer.
We then started working with 6 levels that are role independent. We had to plot that on all people using 20 or 25 indicators. These indicators relate, for example, to how much experience you have, what skills you have and whether you can also coach others. Only after plotting have we linked that to a salary.
Joris Janssen from Luscii
In the end everyone thought it was a fair method and was satisfied with the outcome. But not everyone liked it. This is mainly because we did the placement of someone on a level very businesslike and rational (with the aim of keeping it objective and fair), and there was not enough room for the personal and human side during the process. We already added some elements during plotting to make it more personal and fun. We are now looking at how we can give that personal side even more space.
Role description Compensation Facilitator
Case: Valsplat “tranquility through clarity”
At Valsplat,they wanted a new compensation model in which differentiation was possible. Only a growth curve is then not sufficient.
Every employee is now plotted in a profile a la Baarda model, for example “runner” or “game distributor”. Such a profile description consists of:
- visible behavior
- the comfort zone in which the person within that profile works.
Also at Valsplat, colleagues, a role and the employee themselves determine within which profile that person belongs. That is easier than you might think because the descriptions are extensive and you should always be able to substantiate your point of view with examples.
At Valsplat, it is striking how much clarity is created by the new compensation model. The introduction was just as exciting. Because everyone knows how the process goes and the degree of objectivity is so high, every employee knows where he or she stands. That gives a lot of peace. Now that everyone has been plotted in the new model and all doubts or last uncertainties have been discussed, peace has returned.
In the article about Valsplat, you and your colleagues determine your salary. You can read more about the motivation behind the model, the implementation and HR experiences.
All the companies mentioned indicate that the employees know at least in which profile they fit. The exact salary is not an issue at all for them. Joris Leker of Valsplat, for example, says: “When we had done the very first classification, we personally gave everyone an envelope with their classification and therefore rewards during a large meeting. The notes were already quite open on the table and some were still swinging around later. ”
The learnings of these organizations
The introduction of a completely new remuneration model did not go without a blow to any organization. First of all, it is an enormous amount of work. And it takes time.
It is also difficult work. Honoring differences is ultimately central to all organizations. They all want to do that transparently. And that is why you also have to have serious personal conversations.
For example, they discovered at Valsplat that as a role performer who deals with scaling, you have quite a lot of unrest if you do all the conversations at the same time. Because the conversations can be tough, they now distribute them more over the year. The conversations can be tough because people sometimes feel uncomfortable with the meaning of a certain profile.
You don’t often hear the question “what do you earn?” In the Netherlands at a street party or at the checkout. And you certainly don’t hear the answer often. It is actually just not interesting at all. The question “what drives you?” Or “what is your impact?” Is much bigger. In each of these organizations it is also said: you must ensure that money is not a topic for discussion. Then you can simply talk about the content.