Compensation in the context of the modern workplace essentially relates to the exchange of value between an individual and an organization. Typically, the company pays employees in return for services rendered. More specialized or scarce services are typically more expensive. More abundant services typically result in lower rates. This post, as part of the Teal Series, looks at what compensation might look like in an organization operating mainly from a teal paradigm.
Is money the only means to exchange 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 attracts 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 prioritizes 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 the 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, organizations can operate primarily in a toxic or conscious capitalistic way. The toxic capitalist organization prioritizes profit over employee well-being, primarily interested in short-term gains. They will pay employees as little as possible to maximize 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 simply replaced with someone younger, stronger, and possibly cheaper.
The conscious capitalist organization, on the other hand, prioritizes employee well-being 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 Buffet approached his investments over time.
They prioritize 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 organization 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 organization. When employee’s 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 organization 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:
- creative expression
- new experiences
Money satisfies the need for security, while a promotion might satisfy 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 wasn’t the only currency?
When the goal of compensation is to ensure the sustainable well-being 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’ organization.
Characteristics of ‘Orange’ Compensation
Organizations 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 organization.
Here are the main characteristics of these organizations:
1. Individual incentives
Orange organizations 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 organizations 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 large salary differences
Finally, an organization operating mainly from an orange paradigm tends to have large 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 penalized for being average. This leads to immense competition in the workplace.
Blue and white-collar workers tend to have a large difference in how much they get paid, which categorizes them into different classes. They also get paid based on different terms to further emphasize the hierarchy. 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 organization aims for more equity with the top 3 characteristics of a teal organization listed below.
1. Self-set salaries with peer calibration for base pay
In an organization operating from a mainly teal paradigm, there are no bosses. It is a self-managed system with full 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 individuals, bonuses are not commonly seen in ‘teal’ organizations. All employees and stakeholders share in the profits.
As a form of manual DAO (decentralized autonomous organization), 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 organization) 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 organization has a much narrower difference between employees’ salaries. The top and bottom earners in the organization are much closer than in a typical orange organization where the top earner can earn millions while the bottom earner struggles with minimum wages.
Some organizations 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 major differences between an orange and teal organization, 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 decentralized organization. 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 certain 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 senior gets paid a lot more. Or maybe 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 way? Will the review be done by randomly assigned peers and customers? 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 for value between employer and employee. When there are large 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. If you missed the previous articles in the teal series, here is a summary:
- What does a teal organizational structure look like?
- What does teal leadership look like?
- What does teal project management look like?
- What might teal hiring look like?
- What might teal onboarding look like?
- What might teal training look like?
- What might teal job titles look like?
- Individual purpose in teal organizations
- What might time commitment in a teal organization look like?
- What might teal performance management look like?
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 organization? Find out about an organizational growth coaching program tailored to your organization. Or get in contact to design a consulting or mentoring engagement to help take your organization to teal.
With more than 20 years experience in the software development industry, Kate specializes in helping teams get unstuck, communicate better and ultimately be more productive. She believes in efficiency through fun implementing lean, agile and playful design as tools for process improvement and organizational change. Her goal is to create more happy, healthy and whole workplaces where each person thrives and productivity soars.