wingolog

time for money

25 June 2013 8:19 AM (igalia | cooperatives | anarchy | thoreau)

Good morning!

This is the third in my series of articles on working for/in/on/at a worker's cooperative. The previous one is here; eventually I will update the first to link to them all.

a message of pottage

Today's article is about compensation! You know, pay, salary, that kind of thing. This is such a strange topic that perhaps you will permit me to wax philosophical for a moment.

Most of us in our salaried lives are accustomed to see the checks coming in, as if it were the natural, normal relationship between human beings: organizations depositing money in people's bank accounts at regular intervals.

However, salary is an epiphenomenon. At the most basic level a business has to get sales and deals coming in, and this is a much more chunky endeavor: a big contract here for 8 people for 6 months, a two-week engagement for one person there, and so on. Whereas we can try to convince ourselves of the reality of "payroll" as a kind of constant flow of expenses, income is more often dealt with particle-by-particle, not as a fluid.

Salary, then, is a kind of damping function between the uncertainties of income and most people's desire for regularity and certainty. It also serves as a way for an owner to hide income from workers. The point of employment is for a business to pay someone to provide value, and that the value be greater than the pay; if most workers realize this, they will (and should!) negotiate up or change jobs.

So the question to ask in a worker-owned, self-managed cooperative is, "should we even have salaries?" If workers are responsible for securing income, and ultimately receive all of the income (minus fixed expenses), could it be that creating the illusion of certainty and predictability via salaries might actually be bad for the business? It could be that salary as a flow abstraction over chunky income would isolate a worker from the needs of the business.

We don't talk about these things much, because we're used to the current situation, which I'll explain below. But I wanted to bring up this point because salary like other aspects of the business isn't really decided a priori; it's all up for collective agreement. Granted, it is hard to get people interested in a topic on which they have already had long arguments, even if that was before you joined the group; perhaps rightfully so. But it is all open.

equity

The theory in Igalia is that we pay everyone the same. Everyone should be working with approximately the same effort, and everyone should be working on something that is valuable to the business (whether in the short-, medium-, or long-term), and so everyone should share in the income to an equal extent.

The reality, as always, is a bit more complicated.

I live in the Geneva area: actually in France, but 10 minutes' walk to the Swiss border. I moved here for my partner, who came here for professional reasons, and though I was very uncomfortable in the beginning, it is growing on me. One of the good things about living here is that I'll never be shocked by any price anywhere ever again. Things are expensive here. Anyone who moves here from elsewhere learns a bit of economy, but that only goes so far; the simple fact is that for a similar quality of life, you pay much more in Geneva than you do in Barcelona.

Finding an equitable solution to this problem is an ongoing topic, though we think we have something workable currently. The basic idea is start from a per-location "base salary", and all aim for a common "target salary".

A base salary corresponds to the amount that a person in (say) San Francisco needs to live, below which they would probably have to find another job. The current way to calculate that is partly a function of rent prices, and partly uses some cost-of-living indexes from numbeo.com. We all agree on the target salary as a number that we'd all be happy with, that could let someone live well anywhere.

Depending on how our income is going, we pay someone their base salary plus a fraction of the difference between the global target and their specific base salary. That fraction (the "bonus percentage") is the same for all workers. In that way, in times of plenty we're all getting the same good amount, corresponding to our equal value to the company, and in times of tight cashflow we all have what we need.

As I mentioned in my last article, Spanish workers are salaried, whereas folks in other places are freelance. Freelancers get an additional 30% or so in their income, corresponding to the amount that Igalia pays in social security and other tax for its Spanish employees.

Amusingly, we can't actually codify the base-and-target regime into the legal salary structure for Spanish workers. In Spain the various industrial sectors have collective bargaining between workers and employers to set minimums on the standard contracts, and the base salary for the IT sector is above a Spanish base salary as currently calculated. So although the usual total salary for a Spanish worker is much higher than the negotiated minimums, we can't actually formulate the contracts in that way. As I understand it, this is an example of the kind of restrictions imposed by being a legal corporation rather than a legal cooperative. The funny thing is that Igalia is not a legal cooperative precisely to allow its workers to live anywhere in the world -- a cooperative has to be 85% owned by its employees -- but naturally Spanish employment law doesn't do anything to help foreign contractors, and being a corporation is inconvenient for an organization that is practically a cooperative.

effort and value

Oddly enough, I don't remember anyone ever saying why it is that we pay everyone the same. "Paying everyone the same" is a strategy, not a principle, and as you see it's not even the strategy that we have, given the cost-of-living adjustments described above.

However, if I have to back-justify a principle -- and I do think it is necessary -- I think it is that we pay according to effort, assuming the work is valuable.

Effort is measured in hours, as recorded in a time tracker. Although the time tracker is useful for "management" if that word can be used in a non-pejorative sense -- "is this person able to spend enough time on commercially useful things, or are other things taking up their time?" -- the primary use of the time tracker is to document the time that someone spends at work, so they can get paid for it, and so that we know that everyone is showing similar effort.

It can happen that a person works too much, and in that case we sum up hours at the end of a year and either arrange for that person to have some paid time off, or pay them an extra month or two. This is a very tricky thing, because 40 hours a week is already quite a lot -- many of us would like to reduce this -- and you don't want someone burning out due to overwork, or spending their time on unproductive things. At the same time, it does happen that people do overtime, so we have to deal with it.

The caveat that "assuming the work is valuable" is important, and it touches on the topic of value. It is the collective responsibility of the business to ensure that people are working on valuable things. There are many kinds of value, and not all of them are measured in euros. For instance, working on and around Free Software is one of our values. Doing technically interesting work is also a value, one that compensates us not only as craftspeople but also as a business, through good marketing.

However, not all technically interesting, Free Software projects are equally valuable to the business. Some have customers that pay more than others, and it's the responsibility of the assembly to ensure that people are generally working on things that make economic sense. That doesn't mean there must be a short-term return; for instance, I've heard of a number of different people working on really advanced projects whose budget came out of the marketing department. Nonetheless, in the end, we have to get people to work on technology that sells.

We don't talk very much about it, but not everyone produces the same value to Igalia, even exhibiting the same effort in valuable work areas, and factoring in the intangible value of some projects. I think the current perspective is that this is a problem that we address through training. This has worked out well in the past, for example building out a formidable WebKit team out of people that were specialized in other technological areas. It is an ongoing experiment, though.

Some people suggest that differing compensations are important in a cooperative as a feedback mechanism and to ensure that the worker is actually producing surplus value for the company. For example, Valve's new employee survival guide describes their strategy:

Unlike peer reviews, which generate information for each individual, stack ranking is done in order to gain insight into who’s providing the most value at the company and to thereby adjust each person’s compensation to be commensurate with his or her actual value.

Valve does not win if you’re paid less than the value you create. And people who work here ultimately don’t win if they get paid more than the value they create. So Valve’s goal is to get your compensation to be “correct.”

While I can appreciate this on a business level, when viewed as a social experiment in post-revolutionary life, this is somewhat unsatisfying. Sure, some kind of signalling around effort is useful to have; for me, all socially valuable effort that my colleagues do is acceptable, from 10h/week to 50h/week, though my personal target is in between. Peer review can be an effective input to an assessment of effort and thus compensation. But I am uncomfortable correlating compensation with value, especially market value. I have more sympathy with the "democratic planning" side of things rather than "market socialism"; see this article by Robin Hahnel for some more cogent thoughts in this regard.

bottom line

It's easy to forget when in the thicket of debates over how best to pay people what a pleasure it is to be able to discuss these things without class antagonisms -- without trying to take advantage of management, because we are the management, or exploit the workers, because they are we too. Good riddance to that taboo about not discussing salaries among co-workers. I don't believe that a perfect compensation plan exists, but I am very happy with our ability to argue about it at any time, without fear of reprisals.

I have a couple more topics to write about in the next post or two, but if there is anything you want me to cover, let me know in the comments. Cheers.

10 responses

  1. Aristotle Pagaltzis says:

    What I like about the concept of everyone getting paid the exact same is that (once it is acknowledged and accepted) no single member can argue that they should receive more pay, without arguing that everyone should receive more pay.**

    And the balance sheet directly frames what is possible on that front. So if any conversation on the matter happens, it is likely to be merit-focussed, impersonal, temperate, and (thus) (probably) short.

    It also seems to me this concept is a powerful neutraliser of one possible source of individual discontent, as well as a powerful incentive to adopt collective responsibility as personal responsibility (if I want more money, I have to apply myself to increasing the pot for everyone).

    Alas, just introducing differentials to deal with costs of living across different locations neuters this benefit to a large extent… but I can’t see a way around that.

    ** It is conceivable that someone might argue that they should be the exception over everyone else, but that would require a sort of bull neck that should be evident long before it comes to that particular discussion.

  2. Grant Rettke says:

    Your work situation is curious and intriguing. On the one had, wow, could be so interesting. On the other hand, people are still human, and have all of the things that come with being human, and it makes me wonder how you deal with things like inequity in contribution and labor and so on and so forth.

  3. Brandon says:

    How do you assess whether each is applying an equivalent amount of effort, given the intellectual nature of your work, and that abilities vary? How can you measure any kind of output without resorting to "objective" standards? There's plenty of opportunity for moral hazard here.

    More concretely, suppose the assembly were made aware that a certain individual was slacking (deliberately or owing to circumstance)? Conversely, is there any provision to recognize an individual who has exceeded expectations?

  4. Ludovic Courtès says:

    Does everyone work more or less 40 hours a week, or do some work less? Is it even encouraged to work less?

    On the topic of value, do people feel frustrated as to what has economic value? For instance, it could be that the boring thing is very valuable economically, whereas the smart and challeging stuff much less so. How do you account for "boringness" of a task?

  5. Thaddée Tyl says:

    On the topic of differing costs of living, I'm surprised that your move to Geneva was hard. I would expect that members with a family (and therefore more mouths to feed) would need a higher base salary. Quite frankly, though, I'm not sure how that base salary should be computed. How is it taken into account?

  6. Ole Laursen says:

    "The point of employment is for a business to pay someone to provide value, and that the value be greater than the pay; if most workers realize this, they will (and should!) negotiate up or change jobs."

    Maybe you mean "realize the value to be much greater than the pay", otherwise I disagree with the statement because I think it's not modeling reality correctly. The business owner takes a risk while the salaried employee is guaranteed a salary (at least to a first approximation). The business owner may lose money one year and earn money another year.

    If you recognize that risky income warrants a premium, then it follows that the business owner is entitled to a premium. And in fact I believe that's why most people accept their salary even though they realize they are generating more value than they are paid - they recognize that starting their own business entails risk.

    Thanks for these posts by the way, they're interesting.

    To me, your different cost-of-living calculations aren't really fair per se. Why is it intrinsically fair that your colleagues pay for you enjoying life near Switzerland? It seems to me they are more a reflection of market realities, that if they want to keep you, they have to pay you not too far from a fair market value at the place you live. Of course, the reverse could be said to be true - if your jobs are prized at the place you live, you'll earn more per hour than your colleagues. Compensation is a hard topic. :)

  7. mdgeorge says:

    I love this idea. I think the typical hierarchical pay system is broken.

    That said, I wonder if you guys consider education and experience? It seems to me as if these are tools that employees bring to the table, and an "everybody gets paid the same" scheme doesn't compensate them for the large investments of time and money that they have paid to acquire them.

  8. Brandon says:

    @Ole, I think this is exactly what Andy means when he says that salary acts as a "damping function" over income. But you're right to bring up the subject of risk. Hence the biblical reference to "pottage mess". I assume that in a cooperative, the employee-owners jointly assume risk, and so the notion of a risk premium is irrelevant, but it will be interesting to see Andy's response.

  9. laurent says:

    So when we get teleporters, expect to see price of transmission based on current cost of living to offset the exodus to cheaper places.

  10. Arne Babenhauserheide says:

    Igalia sounds wonderful!

    It’s as if someone took all the wacky ideas I had on how work should be, polished them and brought them into the real world.

    And I really like that base-salary→ideal salary progression: Provide the needs, scale the extra by the difference between needs and target salary (up to the target salary).

    It nicely balances the risk between people: In times of hardship, those with low needs have more left over, even though they get less in absolute numbers.

    Thank you for writing this up!

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