payment, salary, hoursWe are a startup company of 6 people, with 1+ year activity. Now we want to set up a salary system.
Normally, salaries are paid based on job title, experience, location, etc. So the salary is almost a fixed amount. E.g. they agree to pay $4000/month to an electrical engineer of 3 years experience.
Actually, there are complains about this fixed salary. We have proposed 2 methods to solve this problem, and pay the salary according to efficiency:
However, there are many problems with both of these methods:
Is there any other method of calculating the salary which is fair and efficient?
I look forward to your suggestions. Your time and help are really appreciated.
Edit 1
The working hours of 6 of us are different. Some work 40 hours/week, some work 20 h/w, some 30 h/w, etc. And it varies week by week!
Edit 2
In our company, almost everyone has 2 different roles. For example, I work as “IT Admin” and “CEO”. My friend works as “R&D Manager” and “Secretary”. And surely the hourly wage for CEO and IT Admin are different. So we want to find a way to count the hours of each work and role, so that we can calculate the monthly salaries fair and correct.
– Additions with two edits from the question –
There appears to be a perception in the value of “high IQ” and “low IQ” jobs. I think that is not a helpful way to look at the contribution to the business an an individual. We have a diverse set of people in our company and actually if the technical people are perfect in what they do, but the sales people aren’t any good, then the product/company will fail. Equally as well, if you have excellent sales people, but poor techies, then you are doomed too.
You suggest that a high IQ person will complete a task quicker than a low IQ person. I would suggest that there are other skills that come into play that can affect an individual’s ability to deliver effectively. My IQ is between 140-165 and it is my “soft skills” are perhaps more important than my tech skills in quite a few situations.
You say a true thing :-
And surely the hourly wage for CEO and IT Admin are different.
But it depends on the value you think that person adds to the business. For example, my business partner and I are both equally technical in terms of experience (both IT devs about 30 years and very similar industries), but about 3 years ago it because obvious due to company growth that we needed one of us to step back from tech roles and manage the business. I spend perhaps 30% of my time doing back office stuff, that is generally lower paid, but the value to the business is high so I am rewarded equally to my business partner who could perhaps get 50% higher than me on the open contract market due to his more current tech experience.
I think you need a mix of skill groups in your company and all are valuable.
Effective worked hours is very difficult to calculate. Measuring this can quite emotive. How effective is one person’s time compared to another. For programmers, do you measure lines of code, or complexity of code? Creating a benchmark even for coding is challenging, let alone establishing the “effective work hours” worked for an engineer compared to a salesman. I think this is fraught with problems.
Regarding a differing working week length, that might vary, I think you just need to take a call on it and maybe work being paid on the average over 6 months, that then value carries forward, with reviews every so often.
I think you need to take a step back and understand what motivates each of the six of you. I would suggest it will be a combination of: money, power, control of own destiny, lifestyle/flexibility, building something, people engagement, financial/job security, etc. There will be overriding things for each person, for me it is that of being a builder - I like to build a team that is effective and put processes in place that are efficient.
Also what is each person’s “end game”. Where do they want to be in 5, 10 years or at retirement, or do they not want to retire? The answer to this question will affect how they view work.
Once you understand these things, then it makes it easier to approach the money question.
You need to be thinking in terms of a team approach, everyone needs to be happy with what they are receiving compared to everyone else. Trust is the basis of good relationships and it is no less so in business. I trust my business partner of 13 years implicitly, so that I can go on holiday for a month and the decisions he makes will be roughly the decisions I would have made and vice-versa.
That being said, I would propose a variation on what you suggest.
I think you have some interesting discussions ahead of you. Good luck!
You have enumerated the 3 basic options well:
• fixed amount (no rewards/incentives)
• pay by hour (rewards/incentives for hours worked)
• pay by jobs done (rewards/incentives for jobs done)
As you say there are advantages and disadvantages to all of them. In order to get the benefits of all of them, sometimes we use a blended system. For example someone might get paid:
• a fixed base salary, plus
• additional pay for hours worked over 50 hrs/wk, plus
• bonuses based on a jobs done target of some many jobs done.
This way, everyone makes a minimum (base) salary. Those who work more are rewarded. Those who get more jobs done are rewarded.
Some jobs pay more than others. This may be in part due to a perceived difference in value between the roles. But this perception would normally be supported by differences in the market price for talent in a given role.
In terms of the right amount of salary values, get surveys from the market for that talent space. If you are below market prices then staff will have pressure to leave for better pay. Above market value and staff will have resistance to leaving for lower pay.
Some of the compensation in a startup may be something other than cash. For example, an equity stake may be offered. If the future is bright then this may be attractive to the group.
In terms of rewards for effectiveness, those who are more effective are typically rewarded with more senior positions that have a higher base salary.
Success in a startup depends on collaboration, trust, and fraternity. Most of the early members of a startup usually feel a moral investment/ownership in the startup. However, if there is indeed friction over salaries then the moral investments may be slipping. Resolving the salaries question and renewing the moral inventment and comraderie are essential to success.
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