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How to establish a salary increase system without any injustice and subjectivism

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If you are the head of a team of more than three people, then you probably face the problem of employee salary increase. The thing is, it is not clear how to do it transparently and honestly. If you focus only on subjective feelings, you can forget about one of the employees and provoke team toxicity and discontent. As a result, you get disgruntled employees instead of hardworking enthusiasts.

So, you need to build a transparent and convenient system for both employees and the manager. At MetaLamp, we have recently changed it twice. We had to complicate the system, but we kept it transparent and fair for the whole team. We believe that our colleagues should understand why they need to develop and how to do it.

My name is Roman Shtykh, and I am CEO of MetaLamp. In this article, I will tell you how it all works. I hope this material will be helpful, and you can implement it in your teams.

Why we decided to change the existing salary increase system

Our salary increase system has been operating through the Developer Roadmap for about five years. We established three major grades: junior, middle and senior. They were divided into "subgrades", and we made a list of technical and non-technical questions for every level. The rate per hour depended on the level of competency.

For example, if you are a Junior-3 developer, you can earn 450-600 rubles per hour, depending on your experience. When a developer upgrades to the next grade, he gets a minimum rate within the grade range. If a developer works for a while and takes on additional responsibilities, we increase this rate.

If a developer wanted a higher salary, he arranged a meeting with the developers from another grade. Then, he answered their questions from the Developer Roadmap. The result was excellent:

  • Employees knew how to get a higher salary. If you want more money, you need to develop.
  • The developers who took the "exams" also mentioned the benefits of this process. They prepared and revised the details, which did not apply to their current projects.

Read more in the article: How to motivate developers to improve their skills through a transparent salary increase system

When there were 10-15 people in the team, everything worked very well. People actively improved their competencies, and it was significant and profitable for our startup spirit company. Although, we gradually had problems.

The gap between the Roadmap grade and real experience. For example, we often had such a concern when an employee was junior-3 or another one on the Roadmap. However, he had much more experience. So, it was unfair to pay him a junior rate. At the same time, a developer could not apply for a new grade as he did not have enough time to revise for the exam.

So, the leader faces a dilemma. On the one hand, he can increase salaries for those having enough experience. At the same time, it undermines team loyalty. The leader established the general rules, so they should abide by them. If he highlights someone's accomplishments and breaks his own rules, there will be no transparency and respect in the team.

The system considers only technical competencies. A developer is not only a specialist with specific skills. His competencies include teamwork, previous experience, productivity and English proficiency. Finally, we consider even soft skills, even though they are not easy to check. Of course, when we reviewed the grade range, we evaluated not only competencies. However, it was subjectively. We needed a transparent system where people understand what they should do to develop and get a salary increase.  

It is impossible to plan the company's budget. The employees decide when they want to upgrade and get a pay raise. It is challenging for the management in terms of financial planning. For example, it is difficult to calculate the client rate for customers, as it may become irrelevant when a developer upgrades.

There is no systematic feedback. Of course, we have introduced tools to understand employee motivation and morale. For example, we have one-on-one meetings that are mainly about personal attitudes. But we work as a team and do business together. It means that we should consider the employee feedback from colleagues and customers in salary increases.   

As a result, we decided to revise the existing salary increase system and replace it with a new one. Developing the solution, we got inspired by the Performance review tool. At the same time, we tried to keep transparency and consistency for the whole team.

What criteria should we consider in an employee evaluation?

The new system is not entirely our invention. It is a combination of different employee assessment methods currently used in the market. We considered bonuses, soft skills in the Developer Roadmap, getting rid of grade range and even a salary сonsilium. We studied the topic in detail and learnt from another experience. We implemented the best features from different approaches and built our solution.

We have two groups of criteria: measurable and non-measurable. It is easier to work with measurable ones:

  • Technical competencies. We use the Developer Roadmap or an individual development plan, depending on a specialist. This criterion does not change.
  • Employment period with our company. It indicates not only experience and loyalty. Also, it demonstrates the process of understanding. A specialist has been working with us for a long time, and we are happy about it. So, it should affect salary increase.
  • English proficiency. We have defined such criteria: reading, writing, speaking and understanding skills. We need to identify if a person can cooperate effectively with an English-speaking team.

These criteria are easy to measure, but it would be unfair to consider only them. So, we add immeasurable standards, or, in other words, subjective ones.

It is challenging to create a grading system according to these standards. As a result, they are all measured by their colleagues' feedback: managers, team leaders and maybe customers. There are six criteria.

Soft skills. It is the ability to give and receive feedback, build friendly and clear communication and always stay in touch. 

Experience with different technologies and technical outlook. It does not involve only the years of expertise or the developer's number of technologies. Special attention is devoted to an employee within his technical competence. Here we consider the qualitative skills and tasks complexity growth.      

Work speed. We pay attention to how quickly a developer delivers tasks. In the beginning, we wanted to make this standard measurable. At first glance, we can measure the speed of tasks delivery and compare the deadline and completion date. To do this, you need a standard for tasks, but they are often different. It is necessary to create a task speed standard and a trekking infrastructure. However, even if we manage to do this, there still will be cases when it takes a long time to complete a task, but a developer is not responsible for it. As a result, this option turns out to be subjective, and it is easier to use it as an immeasurable metric.

  • Quality. We check if there are many bugs in the developer's tasks, how often we need to do them again, how attentive the employee is to the requirements and how competent he is.
  • Initiative. Also, we consider if the employee notices weaknesses in his project and proposes solutions or if there is a culture of silence. 
  • Taking responsibility for the project. It is significant to understand if a specialist is ready to be responsible for the project problems. This criterion has emerged from practice. Our guys often take the role of a team leader, although they do not have to. They help colleagues with less experience and distribute tasks. It's cool, and we want to motivate such an attitude.

How does the salary increase system work?

The new salary increase system is Performance Review, although it is a modified version of this method. Here is what it looks like from the inside.

A planned salary increase. We review salaries every six months. So, we solve a problem with unpredictability. Also, we go beyond the Developer Roadmap grades. Employees continue to improve it, but it is not the only thing that affects their income growth. We carry out the salary revision even if an employee did not take a grade exam in the last six months. 

Data collection. The manager collects feedback for half a year of the developer's operation two weeks before the meeting. He looks at the progress on the Developer Roadmap, defines English proficiency and asks colleagues about soft skills.

The company evaluates through a three-point scale: poor, satisfactory and good. As for soft skills, our final evaluation is based on feedback from a teammate, customer, team leaders and sometimes HR. They give feedback through the survey. 

Also, an employee evaluates himself. It provides him with an opportunity to compare his and colleagues' feedback. Moreover, an employee has a right to challenge their evaluations if he disagrees.

Growth potential discussion. A manager meets an employee after the feedback, and they discuss a growth plan for the next six months. To clarify, the manager does not suggest the development directions. The employee gets the feedback and determines which growth points he wants to focus on.

For example, an employee completes tasks quickly and efficiently. There are no complaints about the technical part of his work. However, according to the feedback, there are some soft skills issues. His answers to the customer's questions are simple, so this is the reason  why cooperation is not convenient. When the manager gave this feedback, the employee was surprised. He did not even think that the customer might be interested in a detailed answer with explanations. So, it became his development direction.

Data storage. As a result of the meeting, we define an employee's career track. It is a file with personal employees' goals. We store in the cloud, and only the manager and employee have access. Six months later, they gather again, review the career track and compare it with the feedback. Then, we determine the amount of the salary increase.

What amount should we increase the salaries?

The question of salary increase is always debatable. We went beyond subjectivity and introduced a three-stage system with rates.

We apply different criteria to specific amounts of salary increases. For example, an amount of 2,000 rubles is for soft skills, while a technical competencies upgrade can increase your salary up to 15,000 rubles. It means that the measurable criteria are more profitable. As a result, the system becomes more objective because even though immeasurable standards affect the team, their assessment is primarily subjective. Our goal was to make the system more impartial and transparent. So, we increase salaries considerably for such achievements as a new upgrade in the Developer Roadmap, experience in varied technologies and English proficiency.

Each criterion has a rate. It depends on the received feedback. For example, if the review from colleagues about soft skills is “satisfactory”, then the rate will be 60%. Instead of 2,000 rubles, an employee will get a salary increase of 1,200 rubles. If the feedback is “good”, then the amount of pay raise is 100% of the rate price (in this example, it is 2,000).

There is a rate that is always equal to 100%. It is the employment period with our company and loyalty. Even if there are no growth points, the employee will get a salary increase. 

Bad feedback affects all rates. If colleagues, management, and customers give “poor” feedback about soft skills, speed and tasks quality, we consider it a big problem. It affects the whole team operation adversely. 

In such a case, we reduce all rates to 50%. For example, according to measurable rates, an employee should get a salary increase of 20000 roubles. However, his feedback on tasks quality is "poor". So, we will increase his salary only by 10000 rubles.

Attention! A reduction rate is not a way to lower salaries. It only affects the amount of an income increase. We do not consider a salary cut. 

The response of our employees to the new salary increase system

We introduced the system gradually. First, we tested it on a focus group of 10 people and collected feedback. Then, we presented the system at the general meeting and answered questions. We even had to make some changes as there were disadvantages that we did not notice in the first system edition. Nevertheless, our team helped us to see them.

We decided to divide all developers into four waves. We reviewed each wave in September, October, November and December 2021. First, we invited those employees who did not get a pay raise for a long time.

It takes at least a year to see how the system motivates people to develop, whether there are any pitfalls and if it solves a transparency issue. So far, it is a management experiment.

We wanted to create an independent system that reflects as many factors as possible. At the same time, the system should be transparent and operate equally for all employees. We believe that we have succeeded so far. Although we have 80 people in our team, their feedback about the system is positive, and there were no conflicts. We are satisfied, too. For now, the system is only for developers, but we plan to apply it to all company activities. 

What about a salary increase system in your companies? Do you like it? Would it be convenient for you to work under such conditions?

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