Every pay model is wrong
The most useful lesson I have learned about pay is: there is no right way to do it. And I don’t mean “there is no one right way to do it”. I mean “every approach to pay is wrong in some important sense”. That might sound like an unduly negative way to look at things. It’s tempting to dismiss it as hyperbole — but I hope I can persuade you that it’s true.
Let’s begin with an innocent-looking assumption: you would like to have a salary model that pays people in a way that fairly reflects the value of their work. This sounds reasonable - but what does ‘fair’ mean?
Perhaps it means “fair in relation to the market”? In other words, if someone is a junior salesperson at your company, you’d like to pay them a wage that’s about the same as what they’d earn at another business of a similar size in the same sector. In that case, your model should be straightforward to construct: you just need to do a good market benchmarking exercise. It might take a bit of time, but it’s a fairly standard research project. Great!
But maybe that’s not what you mean by ‘fair’. Maybe ‘fairness’ is about paying people relative to their contribution within the company? In which case, you can’t follow the dictates of the wider market — because the wider market puts a premium on certain kinds of work. In fact, the market typically values work that is more easily measured. Sales people, for instance, appear to have very easily measurable work:
total worth of contracts signed = total value generated.
But this isn’t true. You don’t make money from sales alone. You make money when the product is in the customer’s hands, and you can send them their invoice. Value-generation involves both sales and delivery. So, should sales and delivery roles be paid more equally to reflect this?
With some effort you can make either approach internally consistent. What you cannot do is reconcile these two obvious and reasonable definitions of ‘valuing someone’s work fairly’. You have to chose to pay people unfairly relative to the marketplace, or unfairly relative to others inside your company. Either way, you will in some sense have made a bad decision.
The positive take away is this: Since all approaches to pay must be wrong, don’t attempt to make yours “perfect”. Attempt to make it good enough, and then learn to live with its flaws.
