What If You Let Your Employees Set Their Own Salary?

In 2006, Guilherme Gusson began work as an intern for Semco. About a year later, his boss wanted to hire him full time. The young man was willing to go to the next level. But before he made the commitment, he wanted an above-average salary.

If you were this young man’s manager, what would you do?

An employee setting his salary

During a TED podcast interview with Adam Grant, bestselling author and professor for organizational psychology, Guilherme shared that he broached the subject of setting his salary to his manager during a casual lunch break.

Contrary to traditional expectations, his manager listened to the young employee. And willingly discussed it further after that.

The final amount was 15% lower than the original salary that Guilherme asked for. But it was still above average.

Guilherme appreciated the process more than the outcome. He was allowed to participate in every step of the bargaining process.

Pay secrecy vs pay transparency

When it comes to salaries, pay secrecy is the norm. Unless you’re the boss or part of the Payroll Department, you won’t know what your colleagues earn.

Guilherme’s story would probably give traditional company leaders heart attacks.

Here’s a newbie daring to ask for a high salary. And the management was willing to listen. And even bargain with him.

Plus, the whole process was so transparent that the young man could broach it during lunch!

In many companies, the likely reasons for pay secrecy are:

- Leaders don’t want to give employees more ammo to file complaints against management.

- Performance evaluations are still highly subjective. So employee A may receive a better review and higher salary than employee B. Even if they do the same tasks and produce the same results. Based on their manager’s personal interpretation of the evaluation criteria.

- The gender gap in salaries is a longstanding issue. It’s even more ingrained into company cultures worldwide.

- Leaders want to maintain organizational hierarchy. Then those at the top get higher salaries.

Pay secrecy can do a lot of harm. Employees feel like they’re being controlled by an invisible hand. Managers wrongly assume they know what’s best for their people.

But PayScale surveyed over 71,000 employees. Results showed a staggering 60 percent of employees believed they were underpaid. Even if they didn’t have any proof. These respondents were thinking of quitting their jobs based on this belief.

The same survey found that 82 percent of employees were okay being underpaid. If they knew the reason behind the low pay. Similar to the engaged process Semco used with Guilherme.

Ricardo Semler’s maverick system

Actually, Semco was a company that went beyond pay transparency.

Under Ricardo Semler’s maverick system, all employees could set their salaries. Not just a newbie like Guilhermo.

Almost 30 years ago, several employees were dissatisfied with their salaries. Semler and the HR manager addressed the issue by letting employees set their salaries and offering a profit-sharing plan.

Concerns about self-set pay systems

Semler faced a lot of criticism when he presented his pioneering proposal. Concerns included employees would ask for sky-high salaries and become lazy.

These concerns were the basis for 10 myths that Semler busted as he pushed his plan and finally got management on board.

Benefits of self-set pay systems

Semco isn’t the only company that uses a self-set system. Other companies like 10Pines and Morning Star have discovered its benefits, which include:

- Self-managed employees who work hard to be worthy of their pay.

- Increased ownership and fairness. No more rumors about who’s getting how much.

- A rise in engagement, motivation and productivity among employees.

- A more positive company culture.

- More educated employees who know details about market rates and factors that affect salaries. They know the why so they understand the differences in salaries.

Final Thoughts

Semler developed his system three decades ago. Yet, companies still consider it unorthodox.

And if you want to implement this type of pay system, you will face a lot of challenges. Most of them will come from your own employees.

But if you’re ready to be a maverick as well, where do you start? How do you integrate it into your processes?

Learn how to do it through the Semco Style Expert Certification Program (ECP). Our next cohort will start in April.
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