This is the twelfth in a series of 14 articles based on the Teal Organisational Model. The model is designed to help leaders understand and apply teal principles in practice. The series, which summarises each topic on the link above, covers teal leadership, organisational design, team culture, hiring, training, performance management, promotion and compensation.
Overview
This twelfth article in the Teal Organisational Model series explores compensation in teal organisations and how value exchange works in a bossless, self-managed workplace. It compares orange models based on hierarchy, individual incentives and manager-led pay decisions with teal approaches such as self-set salaries, peer calibration, salary transparency, narrower pay gaps and equal profit sharing. It also outlines practical steps to transition from orange to teal.
Introduction
Compensation in the context of the modern workplace essentially relates to the exchange of value between an individual and an organisation. Typically, the company pays employees in return for services rendered. More specialised or scarce services generally are more expensive. More abundant services usually result in lower rates. This post, as part of the Teal Series, looks at what compensation might look like in an organisation operating mainly from a teal paradigm.
Is money the only means of exchanging value? How do you handle compensation in a bossless environment? How do you transition from orange to teal when it comes to handling salaries?
These are some of the questions this post aims to answer. But first, let’s look at a metaphor to view compensation from the perspective of consciousness compared to toxic capitalism.
Growing the good
From a conscious capitalistic view, we might compare compensation with a caring apple farmer. The conscious capitalistic farmer loves growing apples. He finds joy in every part of the process and delights in every apple harvested. He ensures a thriving ecosystem. The farmer makes sure there’s adequate compost with all the nutrients to yield healthy soil. He also complements the trees with companion plants, which attract insects and birds, which in turn adds to the pollination and soil quality in a virtuous circle.
The majority of the apples are sold for a profit, but he also saves some for a future harvest. He understands the interconnectedness of the ecosystem and the importance of insects, birds, and all the other plants and animals. Although his apples aren’t all perfect, they are nutritious and delicious. The conscious farmer’s primary goal is sustainability.
On the other hand, a greedy farmer with a toxic capitalistic view prioritises short-term profit. He sells all the apples at maximum profit while reinvesting the bare minimum back into the ecosystem’s health. His goal is to grow the biggest apples at the lowest cost. Each year, the quality of the soil decreases as it is sprayed with chemicals to kill everything that prohibits the growth of the perfect apple. The insects, birds, and other life gradually disappear, resulting in fruit that looks delicious but lacks nutrients. The soil gets depleted each year until it is depleted, rendering it useless. By this time, the farmer retires. He is unaware of the impact his greediness had on the ecosystem or the ability to grow apples in the future. The toxic farmer’s primary goal is short-term profit.
Conscious vs. Toxic Capitalism
Similarly, organisations can operate primarily in a toxic or conscious capitalistic way. The toxic capitalist organisation prioritises profit over employee wellbeing, mainly interested in short-term gains. They will pay employees as little as possible to maximise their benefits. When the company is in trouble, they don’t think twice to lay off employees to ensure their profits remain intact. Burned-out employees who are put under constant stress are replaced with someone younger, stronger, and possibly cheaper.
The conscious capitalist organisation, on the other hand, prioritises employee wellbeing over short-term profits. They are in it for the long haul. Where necessary, they make short-term profit sacrifices in favour of long-term gains, much like Warren Buffett approached his investments over time.
They prioritise a work environment and actively consider and care for employees’ mental, physical, and emotional health, thus extending the lifetime value of each employee. They understand the importance of keeping the people they’ve already invested in over finding cheaper replacements. They’ve seen the compound effect of having employees grow with the company over the years.
Needs and Compensation
The conscious capitalist organisation views compensation as more than money. They view it as an equal exchange with a goal for both employer and employee to thrive.
Ultimately, compensation is the tool to create a positive reinforcing loop in the bigger system of the organisation. When employees’ basic salaries are adequate, they are motivated to work hard, leading to higher quality products and services, leading to more profit, which ultimately allows the organisation to compensate workers even better.
But is money the only means of compensating employees?
The 6 Basic Needs
While money is a convenient token for exchanging value to meet employees’ needs, it is not the only means of compensation. According to Dr John Schindler, the core human needs are:
- love
- security
- creative expression
- recognition
- new experiences
- self-esteem
Money satisfies the need for security, while a promotion might fulfil the need for self-esteem. There is, however, also the need for love, creative expression, new experiences and recognition.
What if compensation could find a way of meeting more human needs? And what if you could allow employees to have new experiences, recognition, and creative expression within the work environment? What if money weren’t the only currency?
When the goal of compensation is to ensure the sustainable wellbeing of both employee and employer, many options become possible. But first, let’s look at the difference between the primary characteristics of a typical ‘orange’ and ‘teal’ organisation.
Characteristics of ‘Orange’ Compensation
Organisations operating mainly from an orange paradigm reward individuals based on a hierarchy. There also tend to be vast differences between bottom and top earners within an organisation.
Here are the main characteristics of these organisations:
1. Individual incentives
Orange organisations focus heavily on individuals, both when it comes to measuring performance and awarding bonuses and salary increases. Individuals who meet or exceed their set targets get rewarded with large monetary bonuses.
2. Superior decides compensation
Another key characteristic of compensation within organisations primarily operating from an orange paradigm is that the immediate line manager within the hierarchical system often decides on salary increases.
Often, people fall into salary bands, and the line manager has the freedom to increase someone’s salary as long as it falls within these predefined bands.
3. Meritocratic principles can lead to significant salary differences
Finally, an organisation operating mainly from an orange paradigm tends to have substantial differences between the top and bottom earners. As individual achievement is ingrained in this paradigm, top performers are rewarded, leaving average to lower performers essentially penalised for being average. This leads to immense competition in the workplace.
Blue-collar and white-collar workers tend to have a significant difference in how much they get paid, which categorises them into different classes. They also get paid based on other terms to emphasise the hierarchy further. The salaried workers get paid monthly regardless of hours worked, with certain benefits, while the blue-collar workers get paid hourly with no benefits.
Characteristics of ‘Teal’ Compensation
The primary difference in how compensation is handled in a primarily orange and teal paradigm relates to the variance between top and bottom earners in the company. A predominantly teal organisation aims for more equity, with the top 3 characteristics of a teal organisation listed below.
1. Self-set salaries with peer calibration for base pay
In an organisation operating from a mainly teal paradigm, there are no bosses. It is a self-managed system with complete autonomy. Peers decide on salaries, either in a peer-review process where colleagues rate an individual’s performance or an advice-based process where the individuals propose their salary.
When salaries are self-set, they also typically initiate the advice process. Peers verify that the set salary is reasonable and fair and challenge it when needed.
2. No bonus, but equal profit sharing
As the focus is more on the team than on individuals, bonuses are not commonly seen in ‘teal’ organisations. All employees and stakeholders share in the profits.
As a form of manual DAO (decentralised autonomous organisation), everyone entitled to a profit share participates in making decisions related to profit distribution. If you’re not familiar with a DAO, it is a form of legal structure, popular in the blockchain ecosystem, that has no governing body. Decisions are managed in a bottom-up approach where each participant or user gets tokens they can use to vote. The more you contribute to a system, the more voting tokens you get.
Before a project (or organisation) starts, the founders decide on the rules of engagement. For example, maybe you decide that 20% of the profit goes towards operational costs, while the rest is equally distributed by all the contributors.
3. Narrower salary differences
Finally, a predominantly teal organisation has a much narrower difference between employees’ salaries. The top and bottom earners in the organisation are much closer than in a typical organisation, where the top earner can earn millions. In contrast, the bottom earner struggles with minimum wages.
Some organisations also eliminate the difference between how people are paid entirely in an attempt to remove the hierarchy. Everyone gets treated the same. Hourly workers, for example, become salaried employees.
Getting From Orange to Teal
Now that we’ve outlined the significant differences between an orange and teal organisation, how do you move from one to another?
Moving from orange to teal when it comes to compensation might be a decision you want to take slowly. Although I’ve only heard successes around opening up the books, salaries remain a sensitive topic. Here is a rough guide as a suggestion to get you to teal:
1. Decide on an economic model
Money is a sensitive matter, especially when there is a vast difference between top and bottom earners. Before you take any steps that can’t be reversed, preferably spend time to agree on the underlying, strategic economic model.
How do you plan to distribute profits? How will you ensure fairness? What will the currency or currencies of compensation be? Will you, for example, allow benefits like extra leave, time for volunteering, travel perks, or forms of recognition to satisfy human basic needs? How will you handle the transformation?
Crisp, an agile coaching consulting company, has defined, for example, a model where each consultant pays a “tax” based on their income. This “tax” pays for shared services in this decentralised organisation. They also allocate a percentage of their profits to a risk pool.
The first step is to decide on an economic model on a strategic level. Ensure, on a high level, that the best interest of the company – and its purpose – is taken into consideration rather than the best interest of specific individuals.
2. Make salaries transparent
The next step is to open up the books. Make salaries transparent for everyone to see. Some companies do this internally, while others make the information available to the public.
Opening up the books might result in some surprises. Maybe you assumed a boss or a senior gets paid a lot more. Or perhaps you discover someone junior is paid more than you thought fair. Expect some discomfort as people process the contents and create space for conversations around the salaries.
Talk about the elephant in the room.
3. Agree on a salary review process
The final step is to agree on a salary review process and then start using it. Who will review salaries? What if there’s a conflict or disagreement? What if there’s a big difference between what one person is paid and the next?
Will you use the peer-set or self-set salary approach? Or maybe you choose a combination of the two, allowing both peers and individuals to recommend a salary and then find a middle ground? Will randomly assigned peers and customers do the review? Or will the person volunteer people to review their salary?
Here is how Everoze, a values-driven renewables company, transitioned to a peer-pay review system.
Once you’ve implemented the process, intentionally include space for adapting it regularly going forward. You’re bound to have missed some edge cases or scenarios.
Are You Ready For Teal?
Compensation is the exchange of value between the employer and the employee. When there are significant discrepancies between top and bottom earners, an imbalance in the system arises. When employees, for example, feel unfairly treated when it comes to compensation, they might tend to put less effort into their work. This, in turn, leads to lower-quality products or services, which might decrease your profit, which in turn will mean you have to cut salaries even more, creating a destructive cycle.
Transitioning to a more teal way of operation doesn’t have to result in chaos. The question is whether the pain of staying where you are is bigger than the pain of trying something new.
Are you ready to take a step towards a more teal way of operating? Do you need help to diagnose where you are and define a strategy to transition towards teal? Do you need a coach to instil a more teal way of operating in your organisation? Find out about an organisational growth coaching program tailored to your organisation. Or get in contact to design a consulting or mentoring engagement to help take your organisation to teal.
The Thirteenth article in this series discusses Promoting People In A Teal Organisation
