Here's the formula one tech startup uses to determine all non-negotiable employee salaries
At five-year-old social media company Buffer, the salaries of its 65 global employees - from the person who writes its tweets to its CEO - are posted online for anyone to see. They are determined by a strict formula and aren't open to negotiation.
Cofounders Joel Gascoigne, CEO, and Leo Widrich, COO, took this unique approach after deciding early on to make "default to transparency" a top company value. It not only feels natural, Gascoigne told Business Insider, but it helps unite a disparate workforce that lacks a central office.
The salary formula gives employees one less thing to worry about and establishes a level of fairness, Gascoigne said. He and Widrich developed the first iteration of the formula alongside Buffer software developer Colin Ross, who has a Ph.D. in computational mathematics, in late 2013.
They implemented a new version of the formula last November, which we've broken down below.
Mike Nudelman/Business Insider
To calculate the value of a role, a base is first determined. The value of the base is essentially two weighted parts: 35% overall base and 65% location base.
To find the overall base, US data on the national market value of jobs is taken from Payscale and Glassdoor and then multiplied by 0.35 (the percentage mentioned above). To find the location base, data on cost of living for an employee's place of residence is taken from Numbeo and used as a possible correction for average salary by location from data pulled from Payscale and Glassdoor, which is then multiplied by 0.65 (the second percentage mentioned above).
The cost of living correction is a value of up to $8,000 based on the "Good Life Curve," which is intended to lessen wage disparities across the company, a factor Gascoigne considers important due to Buffer's lack of a central office and distribution around the world. The curve takes into account the market rate for a certain job by city. For example, San Francisco and London have a similar cost of living but the market rate for an engineer is higher in San Fran; in order to avoid a large wage disparity between engineers of equal value to the company, the engineer in London would receive a cost of living bonus.
The role value multiplier is entirely based on Gascoigne and Widrich's judgment, as guided by Ross' calculations. It's an adjustment value that corrects for any discrepancies that may exist between a job description as listed on Payscale or Glassdoor and what that role entails specifically at Buffer.
Gascoigne said that he expects to update the four elements of the "role" value in the equation either every quarter or every six months going forward.
The four experience levels - beginner, intermediate, advanced, and master - have remained in place since 2013, but Gascoigne thinks they could use some refining, since determining which level an employee falls into is entirely subjective.
The "no negotiation" policy at Buffer for both new hires and existing employees is meant to keep the formula incorruptible, but Gascoigne says that the experience section is flexible. If employees feel they have advanced from beginner to intermediate but have yet to be recognized, they can contact the appropriate person and schedule a discussion around reaching the next level.
Buffer creates a level of camaraderie among its scattered employees by holding annual retreats, and last year they were opened up to employees' families as well. In this spirit of inclusion, Gascoigne said, he decided that employees should be given an extra $3,000 a year for each of the people they are responsible for, be it a spouse and/or children. He explained that it made sense to his team, but that a number of blog readers criticized him for the choice, saying that equating an employee's dependents with that person's value to the company looked awkward and felt unfair.
Gascoigne is weighing these critiques and said that the next iteration of the formula will probably leave it out, but that the same $3,000 per dependent will be allotted as a separate annual benefit.
This one is straightforward. An employee can opt either for more cash or more stock.
Employees get a guaranteed 5% pay raise for every year they spend at Buffer.
While some might scoff at the idea of a non-negotiable salary offer, Gascoigne said it hasn't been a problem, since the company attracts the type of person who is fully onboard with Buffer's values and has already estimated their salary using the formula and numbers available online.
Gascoigne sees the formula as a constant work in progress. For future iterations, he's considering whether or not a country's tax rate can be factored in, and to see if there is a fair solution for the few employees who lack a fixed location. But so far, he said he and his employees are happy with their public, formula-based compensation system.
"It really helps with having great teamwork and less politics," he said.
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