Calculating performance + inflation + market = a compensation structure that works at Whereby
Jessica Zwaan is COO at Whereby, a video communications platform based in Norway. Our founder Virgile Raingeard spoke to her to find out how Whereby’s compensation philosophy works – and how their framework is engineered for fairness and transparency. One year ago, Jessica built and implemented a unique compensation algorithm to inform Whereby’s decisions in recruitment and retention. For our latest webinar, we talked to Jessica to find out how she did it, and how it’s going.
What prompted this big structural change at Whereby?
Post-pandemic with an increasingly remote workforce, many businesses are no longer operating from a single city or country. Adjusting salaries for currency or market is, literally and metaphorically, brand new territory.
With employees based in Austin and London, Whereby is a Norwegian company which had begun paying salaries around the world in different markets and different currencies. When Jessica joined, she could see that the need for a joined-up compensation policy was becoming urgent. She knew that the longer they waited, the more it would cost to fix the problems.
“As a fully distributed company you have a responsibility to look at compensation much earlier than a traditional single-geography company,” explains Jessica. “Because there are massive differences between markets, you can quickly get into a position where there are significant pay gaps. These things are painful to correct later on as you have to outlay cash, you may have to reduce salaries or suppress them. The compensation you don’t look at is just a fire burning slowly out of sight.”
What was the founding premise for the new compensation policy?
For Jessica, a successful compensation structure would be based on performance – not negotiations. It would also have to account for inflation and market change to ensure that her people were fairly and competitively compensated.
But the most important question was: how can we assess performance and reward it properly?
Jessica started work on an elaborate performance calibration tool, working with an engineer colleague to develop a spreadsheet that would incorporate their unique algorithms and suggest the right compensation figures for every team member.
Jessica recommends looking at employee salaries in the way a retailer looks at product pricing.
“You need to think about your addressable market and the personas you’re trying to attract. Looking for investment bankers, you’re going to have a different compensation policy than if you’re looking for people coming out of academia, and another kind of compensation policy if you’re building a warehouse with people on hourly salaries. So. Assess: what is the persona of a human being you’re trying to attract to your business? What kind of company are you trying to build? I suggest that piece of work is done through what I rather boringly describe as organisational design principles.”
In her groundbreaking article, Approaching Pay (a bit) Like Pricing, Jessica suggests defining your roles using two values: skill and leverage. Skill is the expertise people bring, and leverage is the value that people individually add to the business; a product designer might have more leverage than a receptionist (or vice versa, if you work in PR). Her grid shows company roles placed according to their skill and leverage. The most highly-paid positions fall in the top right quadrant.
How did Whereby position the company?
“We made a couple of decisions [about organisational structure]. We wanted to remain very lean. If you are a lean business, then employees will naturally be more T-shaped people, with broader skills and less specific skills in one area. We wanted to be very tech and able and have people with technology skills in every team; people that could use SQL in our finance team, developers in our people team, etc. So we decided to go for the 75th percentile.”
What if you operate in more than one country and they are completely different markets? There’s a good argument for building more than one framework, says Jessica, and you should do what works for your business. Whereby divides its compensation framework into two.
“We decided that we weren’t going to take advantage of emerging markets but would pay a flat rate across the entire world – and we realised it wasn’t possible to do that in the US the same way as we would do it in Europe – so we decided to split our salary into two regions: US and Rest of World.”
As remote work spreads, says Jessica, Whereby expects the two deltas to merge so that they can eventually operate one simple global framework. And while cross-company fairness is a desirable objective, ultimately, she says, people simply need a set of rules that is transparent and traceable.
“People care about two things: 1- individual fairness, no discrimination or bias in the way they are treated, and 2 – procedural fairness – people don’t care what path you pick as long as it is logical and procedurally fair. You can’t say we just decide market by market on the day; that obviously is not procedurally fair. Just pick something that works for your company, and stick with that.”
How does Whereby set the salary for a new role?
At Whereby, job offers can include up to a 20% increase on the published price. But Jessica says that these offers are rare.
“We publish the minimum salary we will give you, and we have a granted 10% that any manager can make an offer in without any further discussion. If someone has specific background, skills, or experience that we believe warrants an additional 20%, that would be a decision between the hiring manager, the People partner, and their manager – that might be if they’ve worked with a direct competitor or they’re more experienced. Using that 10% or 20% is very rare because we already pay in the 75th percentile. We don’t have a lot of reason to go above it. It might be maybe 1 in 15 offers, maybe less, go into that 10%.”
If the applicant lives in an area where the cost of living is high, such as New York, then the hiring manager might increase the offer on the understanding that there would be a salary change if the employee later moves.
Given the new legislation in Europe around transparency on job advertising, does Jessica consider the 10-20% discrepancy fair? How are managers held accountable for their decisions, both in hiring and in reviewing compensation for their team?
“Everyone has a document explaining why that 10 or 20% was granted, there’s an exec CCd, and there’s a People partner involved in all those conversations,” explains Jessica. “We have the administrative capacity to review bandings at least once every year. And have trust that their manager is able to make good decisions. The manager has to know that if all the salary information leaked, no one would feel embarrassed.”
This is one very strong detail in Whereby’s philosophy: managers are expected to behave at all times as if compensation figures could be made public. This promotes accountability and objectivity and, says Jessica, is expected of every manager from Hire 1.
Can incoming team members negotiate their compensation package?
Whereby’s policy on job offers does have one controversial aspect. There is no negotiation at any stage.
“We do not do any negotiation whatsoever,” says Jessica. “We have compensation on every job ad.... we do no negotiation, and in recruitment that has always been positive. It’s a stressful way to enter any relationship, so I think most people are glad to see it gone.”
Jessica explains that negotiation has been shown to disadvantage people who are in minority groups. Women and people from minority backgrounds are disenfranchised by negotiation, so it can be a factor in broadening pay gaps.
“If you are a person in high demand, you’ve gone to a very fancy school, strong resume, you know that you’re hot property, you’re going to be very comfortable having a negotiation conversation because it doesn’t really matter. However, if you’re a working mum who needs flexibility if you had a career break, or you didn’t go to an illustrious university, it’s going to be difficult for you to have a tough negotiation because you’ve got a lot more to lose. The power imbalance is just so massively different.”
To address this imbalance, a Whereby job interviewer won’t look at salary histories, either – preferring to question people on their experience and skills.
“We will never ask about your previous salary. We will only ever ask: what are your expectations? It’s for the exact same reason – if you are stuck in a pay gap, it’s very hard to get out of a pay gap; even if it’s a good company that you’re stepping into, if they’re basing the salary off the old company that has made a decision based on projected status, that is something that you are going to constantly be stuck within... and we want to break that cycle.
How do managers play a role in the compensation framework?
Managers are not simply handed a structure by HR: they are actually given great responsibility for their team’s compensation, says Jessica. First-time managers are provided with training so that they learn to access and interpret market data, and it’s important to Whereby that they have a hands-on approach so that they understand the context of the company’s compensation calculator.
“I’m a big believer that the best way to learn is doing. I could go through and get job data from Figures or ERI – it’s not difficult to match a job code and years of experience to a level and say yes, this is roughly what we have in our spreadsheet, but the reason I get managers to do it is that it educates them on a couple of important things. The first one is compensation data is market data: it is random, it doesn’t make any sense... why is level 1 a 5% difference from level 2 but then level 3 is a 15% difference? That’s what the market’s doing, that’s just what it is. I think early managers come into compensation with this belief that there is a perfectly structured table, that everything matches against each other and it all works out.”
In reality, the market can be chaotic. During the past year, some markets have seen enormous rises, with up to 20-30% increases in certain industries and jobs. Inflation in each country can be different too, with the UK seeing 4% compared with 30% in South America. Although companies like Figures assemble the numbers, we have no control over the unpredictable nature of the data.
Still, throwing managers in at the deep end isn’t just a fun exercise. Every manager is held accountable for reviews and decisions around their team’s pay, forming a documented trail to support every decision.
“Giving managers visibility and accountability is very important – often HR teams say this is the structure and that’s it. We see a lot of engagement from our managers around compensation – they really care about which job code we use [as part of performance reviews], they get involved in the algorithm that we have for making performance-based pay decisions, they want to understand because they know they will be held accountable by their team.”
How did you build your compensation calculator?
To create the unique calculator used at Whereby, Jessica worked with a team member who was formerly an engineer. The objective was (as always) to obtain numbers that would retain staff without busting the company budget. It’s a fine balance, but this year was more difficult than ever.
“We originally had a plan to do one algorithm for the entire company so everyone would get inflation change, market change, and performance change. Everyone’s inflation change would be the same, market change would depend on the calculator, and performance change would be [at set levels] depending on their performance.”
Then the past 12 months happened, and job salaries began to veer apart quite dramatically, with some (such as engineering) increasing by up to 30%.
“Engineers might be getting 30% while our equally high performers in commercial might be getting 12, 15% because the market just hadn’t moved as significantly.”
To address this diversity, Jessica and her colleague used two algorithms: one for team members whose markets had changed more than 15%, and one for everyone else, with higher performance-based increments.
“We ended up having to think quite creatively about how to make this work – we have to build a performance-based culture in a much more aggressive market than we expected.”
The plan is to adjust the job codes in the algorithm once a year, with managers checking the detail “with a fine-toothed comb!”. Although it’s scheduled for annual updates, Jessica reflects that twice-yearly updates might be necessary in the future.
How do you calculate the compensation for performance?
“Performance calibration is a very structured process,” explains Jessica. “Everybody gets a position on the performance snapshot.”
Once managers have placed their team members on this grid, they discuss and compare with other managers to ensure that they are all using the same criteria. They’ll have evidence-based discussions to get everyone positioned fairly.
“Then information feeds up to the exec team for high-level oversight. If a manager has rated everyone in their team in the top right-hand corner then it will get flagged up and the exec lead will ask questions.”
Once agreed and approved, the grid positions correlate to a percentage of pay change: on the top level, team members will receive a 12% pay change, and those performing at expectations will receive around 3%, which is added to inflation and market changes to calculate the compensation change.
So how does the compensation review work?
At any time outside the first quarter, when relevant – for example, when a team member has completed a successful new project, or an incoming member arrives on a higher salary than an existing person – a manager can trigger a pay review.
“We’ve removed negotiation there as well; it is given to us by an algorithm. We double-check to make sure nothing odd is happening, but generally, it’s just given to you based on performance and market changes.”
Is there any opportunity for a pay review between the annual check-ups?
“We have a salary review that can be triggered by a manager any time between June and November so that if they bring someone into their team who is paid above another person for reasons they can’t really justify, they can trigger a pay change process so that the salaries come into line.”
It’s not just talk: Jessica cites a recent example of a team member receiving an unexpected pay rise. Employees, instead of having to fight for their pay rises, can expect to see their compensation raised in line with market rates and their increasing experience. It invites trust and builds loyalty among the teams, with managers asked to encourage and report great performance. This proactive approach is not unique to Whereby, but it’s still rare. Unsolicited compensation reviews? Show us where to sign.
Listen to the webinar in full for more exclusive content from Jessica – including her personal take on negotiations, how staff felt about the new compensation framework, and how one person received two pay rises before starting their new job at Whereby!
“Your company is going to spend 60-70% of its money on your team. So if you are the head of HR, you are ostensibly in charge of the biggest investment your company will ever make,” says Jessica Zwaan. “That is a huge responsibility... and also a massive opportunity. Compensation is one of those areas that touches the very core of that commercial relationship... it has a massively commercial and massively important role to play in your business: you just need to frame it in the right way that gives you authority to make decisions and be part of it.”