Startup Life/Opinion/

Here’s why you shouldn’t let your employees negotiate salaries

Instead, try setting totally transparent and fixed salary bands

Nicholas Wagner

By Nicholas Wagner

The tech sector is currently in one of its biggest states of flux since the dotcom bubble burst. Whilst companies are slashing valuations and laying off staff, there are many startups and scaleups out there that are shoring up their teams. If you’re looking to expand and want to ensure you’re finding the right person for your teams then here is an idea: don’t negotiate salaries.

Over the past few years, we haven’t negotiated salaries with future and current team members at 360Learning. Instead, we’ve used carefully calculated salary bands for each job (more on that later) since 2019.  

That may have seemed questionable when retaining top talent was proving so tricky during the Great Resignation, but actually, it’s proven to be very beneficial and fundamental to our culture, ethos and values as a company. And we’re not the only ones; in the US, Buffer and Whole Foods have also taken steps to make salaries more transparent. 

Our solution: non-negotiable, data-based salary bands

Salary transparency has long been one of our guiding principles. But it means so much more than putting a salary range on a job advert. Much like companies that tell you they’re remote-friendly without putting in any systems in place to actually support remote workers, there’s no point saying you’re transparent about salaries if, when a new employee joins, the process of performance reviews and salary raises becomes akin to cracking an ancient code. Instead, we’ve found that being upfront, accountable and having zero bias when it comes to a team member’s compensation is highly effective in retaining talent. 

Too often in many startups, salary ranges are made to be broken. Maybe there’s an incredible new hire that needs a big wage or maybe there’s a manager that needs extra performance from an employee so holds the prospect of a raise over their head to get it. Not only does that make a mockery of the whole idea of salary bands in the first place, it can often lead to unethical practices and inequality between employees.

“Too often in many startups, salary ranges are made to be broken”

Our salary bands are unbreakable. When our yearly compensation reviews come up, these ranges are calculated, not negotiated. And the way that they are calculated is entirely transparent too. Our total rewards director (who focuses exclusively on compensation) uses data — and a lot of it — to work out the market rate for each job in the company and sets the salary ranges accordingly.

Alongside this, we use a levels system using a factor-based method that helps us to decide where a candidate fits and manage their career progression as they grow. Everyone knows their own level and they know the level of everyone else in the company. Depending on your level, business area and location, you’ll receive a set salary. And safe in the knowledge that you’re being paid at the 70th percentile of the market for your role. 

Basing compensation reduces bias and anxiety for employees

This way companies like ourselves can stay accountable, operate with low authority and eliminate bias. But it’s also a way to retain top talent by creating a positive workplace culture in the process. Not negotiating salaries makes them highly predictable for employees, meaning an end to the angst of wondering when their next raise will come. Moreover, relieving managers of compensation discussions makes their lives easier too. Plus it means compensation isn’t correlated to an employee’s skill as a salary negotiator or their closeness to their boss. Avoiding these potential pitfalls could mean the difference between a top employee staying or going.

Perhaps most importantly though, not negotiating salaries means companies can avoid gender pay gaps. This is because women are 80% more likely to not negotiate pay when applying for jobs, leading them to feel undervalued and underpaid. Using data to set our salaries and taking negotiation off the table helps people to know they are valued and paid correctly. We’re constantly analysing and assessing how much people are being paid to ensure we can achieve better equality as a business. 

While I know some tech companies will stick to incentivising employees with vague promises of potential raises in the future, if you want to truly drive value amongst your team, then create a transparent system around compensation that says exactly what it will do and sticks to it. That way we can turn the Great Resignation into a great revolution. 

Nicholas Wagner is chief people and culture officer at 360Learning. 

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Don't find me
Don't find me

I checked out his company; they don’t even advertise the jobs with the salary listed. Stop preaching what you don’t do. You have done an excellent job by banding up the pay scale, so why not go a step further by providing a transparent compensation range for each post listed. You know, the moment you do that, you either get applications from under-qualified candidates or no applications based on what you are offering. As a female, I know my worth, and I negotiate.

David O
David O

This method optimises to cost control and impacts talent attraction

George
George

Knowing that I’m at the 70th percentile for my role is not going to motivate me.

My employer has moved from a 50+ pay point system to a 10 band system, while also making it abundantly clear that new starters are paid significantly less. Transparency is only good if there’s equality.

Sam al
Sam al

Is there a salary band for top execs? Are people in your org aware of your compensation?

NotGreeting
NotGreeting

LOL You must be joking. Negotiations are a sign of freedom and you are clearly advocating for treating us like robots, numbers in spreadsheet. I hope your company fails lol

Barnaby Dawson
Barnaby Dawson

Do you do this at the board level for your founders and your key entrepreneurial talent?

Not all jobs that your employees do will exist in sufficient numbers in industry to set the bandings like this. Some individuals will be doing multiple roles that are not in their job description.

I don’t believe that this can be flexible enough for truly innovative companies.

I do think though that proactively reviewing employee salaries helps to counter gender bias I just don’t agree that salary bands work.