It’s been the system of getting a new job since time immemorial. You go through the application rigamarole. You’re interviewed multiple times, and every time, you pass muster. Finally, they’re ready to make you a job offer. They send it your way, and you take a look — it’s another lowball number. What do you do?
Startup founders often think of the lowball offer as a harmless invitation to negotiate, but to Steve Newcomb, founder of Famo.us and Powerset, it’s one of the dumbest things that you can do in recruiting engineers. And the worst thing that can happen is that the engineer accepts your lowball offer.
That’s why in his companies, Newcomb uses an unconventional but powerful tactic. Incoming engineers actually aren’t allowed to negotiate their salary — they get whatever is determined by the company’s salary formula.
The Inevitability of Salary Transparency
During his time working with engineers, Newcomb has noticed that engineers often don’t negotiate well or don’t want to negotiate. In contrast, founders “are almost by nature programmed to negotiate everything.” This creates a major mismatch that can result in founders taking advantage of engineers on salary.
The catch is that inevitably, the engineers, “who all have different deals, get drunk one night” and share how much they make. The founder’s perceived short-term gain has just killed fundamental trust and morale across his company when engineers find out they’re getting paid differentially for the same job. An engineer may not negotiate salary, but she knows when she’s being treated unfairly and will leave as a result.
What you’re left with is an engineering organization that’s good at negotiating, not engineering. In other words, you have a hiring process that reflects the perversion of the process, not merit.
How to Make a Salary Formula
Because engineers should be hired for talent rather than negotiating skill, Newcomb decided to remove all negotiation from the hiring process. It’s a bit paradoxical, but Newcomb set out to create a more fair hiring process by removing personalization and wiggle room.
Here’s what he advises for creating a rational, objective hiring plan:
- Outline 10 levels of competency per talent type; i.e. one for each type of engineer, one for designers, one for product people and so on.
- Create your high and low salary bookends for each competency, which may be unique depending on your industry.
- Then create 10 levels of salary for each competency: Junior 1-3, Mid 1-3, Senior 1-3, and a VP. Then all Junior 2 engineers would have identical salaries, as would all senior 3 engineers, etc.
Then when it comes to making a job offer, all you have to do is show them the spreadsheet, explain the rationale, and show them where they fall.
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For companies like Buffer, creating an objective and fair salary formula is the starting point for total internal and external salary transparency. They not only have an internal spreadsheet with everyone’s salary and the salary formula, they’ve shared it with the world.
To Newcomb, this extreme measure makes total sense because it “heads off at the pass that drunken disclosure scenario that always gets someone pissed off or quietly erased.” It’s about not being, in Newcomb’s words, an “ass-hat” founder who tries to take advantage of his team. Rather, transparency reaffirms trust and lets us focus on doing our best work instead of worrying about whether we’re getting a raw deal.
Illustration: Aidan Jones