Using the Salary Formula to Define and Explain Management Expectations

Many sources about how we manage people in the Agile environment, strictly encourage us to define the borders (see Jurgen Appelo, Management 3.0), or to clearly define and enforce our high expectations (see Lyssa Adkinson, Coaching Agile Teams). It is easy to say but hard to do, and there is a good reason for that. It is not enough just to set the borders and motivations. We also must align the deep understanding of their responsibilities with these expectations. Otherwise, our best intentions will fail to overcome a straightforward thought of our employees: “But… I am paid to do my job. All that those weirdos say sounds great… but this is not something that they pay me for”.

One of the greatest methods to align their perception of their own responsibilities and our expectations is to reflect it to… what they are paid for! Don’t try to fight or overcome the logic “I am going to do only what I am paid for,” but adopt it and use it to deliver your message (if you learned a little bit about soft skills for negotiations, it might sound familiar, isn’t it?). The Salary Formula practice works fine for that purpose.

I always start with the meeting to discuss and introduce it to a team. Here is the way how I prefer to run this meeting:

1) First, I confirm the shared understanding that the salary is the compensation for the value that the employees bring to the company.

2) Then, I run the discussion on what the value is. A good starting question is whether the work we do today is the only value. What about the company’s tomorrow? What about their own tomorrow? What about not only “what” we deliver, but “how” we deliver?

Of course, you don’t have to accept all the options they offer, you are the one who decides to pay money for it, but it is always beneficial if they offer the value themselves rather than you told it to them to provide it.

For this discussion, I recommend using the methods that facilitate all participants’ engagement, so everybody has the chance to sound their vision.

3) There is the checklist that I use to make sure that we have discussed all the essential options:
[ ] Create quantity that generates the company profit
[ ] Create quality that generates the company profit
[ ] Improve productivity (personal and others)
[ ] Improve abilities (personal and others)
[ ] Reduce risks
[ ] Improve the relations between participants (e.g., increase trust)
[ ] Improve the comfort of the working environment

4) And, finally, I use the salary structure to reflect how much the company values their participation in creating all these values. It is often astonishing for the employees that immediate profit-creation actions valuation between 50 and 75% of the salary.

I also want to highlight two big mistakes that you may make while running this meeting.

1) You don’t ask for their opinion on what is important and valuable for the company in its employees. First of all, it would cause the lack of commitment if you are the only source of statements. But also you may oversee valuable offerings that they may have. These offering won’t just increase their value. More important – they would create a feeling of being partners rather than being ordinary subordinates.

2) Be very cautious about their perception of the discussion. Some people recognize your attempt to increase transparency as an attempt to create an additional burden without a pay rise. You may want to postpone the debate and instead work on establishing of little bit better trust or… you may decide at some point that there is no reason for you to waste your time on the people who don’t trust you that much.

The important point is that the salary formula established once does not have to remain exactly the same forever. It must always reflect the current company needs and the challenges the company is facing. However, it is vital to make these needs and challenges transparent whenever the salary formula is adjusted.

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