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Fair Individual Compensation for Agile Teams with Team-Set Salaries

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Team-set salaries can be used to set fair compensation for individuals in multiskilled, collaborative, autonomous teams. People don’t appraise themselves, only their colleagues. It gives everyone a direct say in salary settings.

Klaus Wuestefeld spoke about team-set salaries at Lean Agile Exchange 2021.

With team set salaries (TSS), appraisals are made by team members themselves in about 15 minutes, using the zero-sum metaphor of "dividing up a pie". This means that team members cannot simply give everybody else a good review, as they could in traditional 360 reviews, as Wuestefeld explained:

When you say some colleague will get a larger chunk of the pie, automatically all others get a smaller chunk.

Some people fear this "zero-sumness" as taboo, but it simply embraces the finite reality of a compensation budget at any given point in time, Wuestefeld mentioned.

TSS requires people to do their appraisals by answering a single overarching question. The question Wuestefeld uses is "What is the value of each person’s contribution compared to their colleagues?" This allows his team to collaboratively resolve the subjectivity that is inherent to the appraisal of any kind of teamwork:

TSS results tell me precisely how much of the compensation "pie" each person should get, in the team’s collective opinion. "Ann should get 13.6% of the pie and Bob should get 10.2%", for example. So, when I have a new budget for giving people raises, I give them to the people deserving them the most, according to TSS results.

"As a manager, I still have the final say on compensation, but I have found the raw TSS results to be consistently fair over the years," Wuestefeld mentioned, "they represent each team’s collective opinion after all."

InfoQ interviewed Klaus Wuestefeld about team-set salaries.

InfoQ: How do team-set salaries differ from traditional reviews?

Klaus Wuestefeld: With traditional 360-degree reviews, team members have to spend hours filling in review forms in a process that quickly decays into a popularity contest. People are discouraged from giving an honest negative review in fear of retaliation, so the whole thing becomes a political exchange of favourable reviews.

Managers are then forced to spend days in secretive, closed-doors "calibration" meetings, to arbitrate people’s results. Calibration meetings are where transparency goes to die. It’s no wonder that everyone, managers especially, hates traditional performance reviews.

InfoQ: What challenges have you seen when working with team-set salaries? How did you deal with them?

Wuestefeld: An employee once complained that the process was "too impersonal" because the final result that balances all appraisals is produced by an algorithm. People who get bad results in TSS - or any process, really - will sometimes complain about the process rather than owning the problem and seeking to improve.

That is actually a problem that I WANT to have. I want the people with bad results to become uncomfortable and give the team feedback, so we can improve our working system, or voluntarily switch jobs to some other company where they can thrive.

InfoQ: What benefits did you get?

Wuestefeld: Performance review and compensation setting used to be quite stressful. I used to have people knocking on my door, demanding raises every other week. Even trying to be 100% fair and holding calibration meetings with respected senior employees, people would perceive the process for what it was: non-transparent and arbitrary.

Using TSS, performance appraisal for salary setting became a non-issue in my teams; something that happens naturally, in 15 minutes every quarter. The perception of fairness and transparency is 100%.

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