After much thought, Isometric has decided to use pay points rather than pay ranges to calculate our salaries.
Here, I’m going to lay out our methodology, our reasoning and offer some pros and cons of the decision we’ve made.
What do you mean by pay points?
Traditionally, an individual’s pay sits within a market-calibrated range for their level. For example, a Level 1 juggler might be paid between $25,000 and $30,000, depending on a number of factors.
Placement within that range would depend on the juggler’s time in role, previous experience, performance against outcomes—and a number of other factors. In practice, this usually means that all the Level 1 jugglers in a particular company are paid a different amount per year. And (early warning here of my beef with the system)---that stack rank very rarely lines up with the actual impact of those jugglers on the company mission.
For a host of reasons outlined below, Isometric has decided to do something different.
We’re using pay points.
That is to say, we’re going to work out whether an individual is:
- New to level;
- Secure in level;
- Moving towards promotion (ie: doing some of the level above).
Every individual who is, for instance, new to level at Level 1 juggling, will therefore be paid the same amount. And the only way to get a pay rise will be to move from one sub-level to the next.
Why don’t you just use the same range-based methodology as everyone else?
Every other company I’ve worked at has a methodology that looks something like this.
A manager begins by looking at the salaries paid to each person in their team. Those tend to be a little messy. That is to say, in a well-run business anyway, they’ll loosely fit within stipulated ranges, but will also depend on such factors as:
- How much the person was paid before they joined;
- What the market was doing when the person joined;
- How much the person argued about salary when they joined and at previous salary reviews.
The manager will then conduct a performance review process, in which they’ll assign a rating to each team member’s performance. The ratings will go through laborious calibration against other managers’ teams to ensure ‘fairness’ across the org (more beef), and a final rating decided upon.
That rating will correspond to a multiplier that, when applied to the market reference point (the middle of your salary range), results in a totally fair salary.
Right?
Wrong. In a number of ways.
Fudge #1 - Budgeting divorced from projections
The first issue is that the pay rise budget is usually not arrived at collaboratively with People Ops, and with its basis in projected performance and growth of team members.
Instead, it’s usually handed down and based very largely on financial performance and external market factors. Good year: big budget. Bad year: little budget.
Fudge #2 - Exec power struggles
That being the case, the next thing to occur is a bare knuckle fight round the exec table for slices of the pie.
Powerful execs get big budgets; less powerful execs have to make do with whatever crumbs they can gather up.
This power struggle is usually then replicated in calibration, with more junior members finding themselves downgrading large numbers of their team while other execs get whole groups through unchallenged.
Fudge #3 - The illusion of fair evaluation
A more nuanced issue in all of this is that - it’s extremely difficult to fairly (read: accurately, consistently and in a repeatable manner) assign a performance rating to an individual.
How do you separate that individual from the other members of their team, with whom they collaborated? How do you account for the ebbs and flows of the individual’s year? The stellar project they landed, and the less good weeks when their child was ill? And whose opinion do you even trust? Their manager says they’re great, or the manager of the parallel team who doesn’t rate them?
Even under perfect conditions, there’ll be some variation. Most of us can’t help but be biased by thinking that individuals who do the role similar to how we do are better than those who do it differently…
The manager’s impossible position
All of this explains why so many of the performance and salary review conversations you’ve had don’t really make sense.
The manager is left trying to explain to you exactly why your salary is what it is—all the while knowing that it’s not what they recommended, they don’t agree either with the salary or with the performance rating, and that there’s somebody else less good than you who’s being paid more.
Ugh.
The crux of the argument
All of which brings me to the headline conclusion. It’s all just smoke and mirrors!
In the vast majority of performance based pay systems, you are not being paid fairly.
And worse, this organizational fiction is one into which companies all around the world hemorrhage resources.
To me, the whole thing seems a little absurd.
What are the downsides of pay points?
I’ll be honest and say that there are definitely downsides.
The first and most obvious is that we risk losing the clarity of the short term financial link between what an individual puts in, and what they get out. That could result in lower motivation.
We hope to counter this by leaning hard into the intrinsic motivations of a meaningful mission, a supportive and collaborative culture, and plenty of resources to support personal growth.
Another downside is that we’ll be deprived of the most famous diving save of all—the salary bump offered to an employee who is threatening to leave, or who considers they have a better offer. After more than a decade of doing this role, though, I’m OK with that. In my experience, someone who’s that far out the door won’t hang around long either way.
Finally, some of the issues I’ve outlined aren’t wholly solved by moving to pay points. Budgeting based on projected performance must be done either way—and the challenge of fair evaluation remains too. However, by loosening the link between performance rating and pay, I’m hoping to downgrade the importance of that rating too - and instead allow the team to focus on personal growth and impact.
What are the benefits?
The system will be extremely simple.
The system will be operationally light.
There will be no space to ‘fudge’ the budget; an individual will always be paid for the role they’re doing (and this will be easier to forecast).
The system won’t privilege people who were better paid before they joined.
The system won’t privilege people who are better at arguing (at exec or individual level).
We’ll be reporting a gender pay gap of zero - and focusing on the more challenging job of ensuring inclusion and representation across different roles, and different seniorities.
In conclusion
Whilst understanding that no system is perfect, Isometric has launched a system of pay points which, along with a performance review process, we use to review and refresh salaries once a year.
It’s clean, simple and, best of all, it is truly (as truly as we can manage, anyway)—fair.
