Top 10 Myths About Democratic Management

What Happens When Employees Choose Their Own Salaries

The secrecy that surrounds what employees of an organization get paid is legendary in its power to create disengagement. In fact, a PayScale survey of over 71,000 employees proved to be quite eye-opening about the effect pay secrecy has on employee engagement.

A whopping 82 percent of employees reported they would be okay with being underpaid as long as they knew why. Two-thirds of survey respondents felt their employer was not paying them the market rate, even though they claimed to do so. And a staggering 60 percent of employees who felt like they were underpaid reported they might quit their jobs soon.

Pioneering Pay Transparency

The taboo that surrounds conversations on pay is a form of organizational paternalism. It stems from companies refusing to treat their employees as adults and misguidedly limiting their autonomy. Managers often believe that their employees don’t want coworkers to get wind of how much they earn. And, they’ve been conditioned to think that having an open conversation about pay might lead to people making “irrational” decisions, like quitting.

In the end, employees feel like they’re being controlled by an invisible hand while managers wrongly assume they’re doing whatever’s best for their people. However, a number of companies like Buffer, SumAll and WholeFoods and have shown that it is possible to do away with pay secrecy. That, open access to relevant information can actually drive up engagement and positively impact culture.

And Semco is one of the pioneers when it comes to transparency around salaries. There’s a story in Ricardo Semler’s book, The Seven Day Weekend: Changing The Way Work Works, about Semco employees setting their own salaries. It evoked quite a lot of shock and controversy and people simply couldn’t wrap their heads around such a practice. They thought it was crazy. But it’s one of the company’s most popular practices till date and it had a huge impact on Semco’s already unique culture.

Shock, Skepticism And Consensus

It all began 30 years ago, when a number of people working at Semco felt dissatisfied with their current salary levels. Ricardo Semler and the then HR manager wanted to address the issue immediately and they came up with a revolutionary idea: They thought, why not let the employees define their own salaries?

So, they decided to offer employees information on what the salary range was for their specific position in the current market. They also turned it into a teaching moment by showing people the various considerations that went into defining those ranges. When Ricardo and the HR manager proposed this idea in a meeting with all managers at Semco, the initial reaction was one of disbelief. People thought the idea was crazy and that it would cause a lot of discussion. While some of them were convinced that everybody would want to raise their salaries, there were others who reminded them that they had a business to run.

Overall, the plan faced a lot of skepticism and resistance from the management. However, they pushed through and got everyone on board.Ever since, Semco employees have been setting their own salaries, based on salary ranges derived from market research done by a trustworthy external partner.

Negotiation, Education And An Anecdote

Apart from the huge impact it can have on company culture, allowing people to set their own salaries is a great opportunity to educate as well. People often feel like they’re underpaid, but they don’t have any real numbers against which they can compare their pay. When a company makes the (huge) effort to collate data and provide salary ranges or the average market rate for every position, it’s bound to dramatically improve productivity and engagement. Employees will begin to feel more empowered because they now have all the information needed to assess whether or not their salary is fair.

To wrap up, here’s a quirky anecdote from the time Semco first implemented this practice:Jose Violi, who was a Semco employee during that period, took everyone by surprise when he rejected the company’s offer to increase his pay.

The market research showed that his salary was well below the market average for his position and the company wanted to close the gap. However, he declined their offer saying he was perfectly happy and comfortable with his current salary. Despite the management insisting upon giving him the raise, he was the only employee who refused to accept it. Today, he is one of the main shareholders of the Semco Partners Holding.