March 2, 2022 | 4-minute read (688 words)
Portland, Oregon-based software firm Expensify has adopted a novel approach to employee compensation. Employees collectively vote on their coworkers' compensation, including that of CEO David Barrett, according to a CBS News report.
Employees at expensify are not allowed to negotiate salaries, in part because this results in employees receiving raises due to their ability to negotiate rather than their work performance. Instead, compensation is based on your co-workers’ assessments of your contributions.
The process “controls for internal bias because there is no manager you have to suck up to,” Barrett told CBS. “The only way you can game the system is by kicking ass. You win by being amazing.”
Expensify's approach to pay comes at a time when an increasing number of states and municipalities are passing salary history bans, based on the premise that knowing a candidate’s pay history pushes women and people of color, who have traditionally been paid less for the same job, into lower salaries.
Expensify's compensation review procedure
All of Expensify’s 140 workers are free to participate in the appraisal process. While an employee can opt out of participating in the voting process for co-workers, a vote will still determine their compensation.
The process of voting entails about 10 hours to completion, and it is repeated every six months. The reason it is so time consuming is that every employee is shown two workers alongside one another, including their names and descriptions of their accomplishments during the interval under review. Then, employees are asked, “Which one should be paid more?”
Since all workers are obligated to vote on every potential pairing, they wind up voting on over 9,000 different options, such as comparing CEO Barrett to every other employee at the organization.
"Once the voting is completed, the company trims the outlying top and bottom scores to control for issues like people who have grudges or who want to reward their friends … workers landing at the top of the scale get the biggest pay hikes, while those at the bottom may see a small or no raise,” said Barrett.
The CEO's pay is established in the same way. The board of directors of Expensify determines Barrett's salary. The sum is determined by the votes cast throughout the compensation review procedure.
What about brand-new employees? The ranking system determines the starting compensation for new workers. Following the interview, the employer determines where a new worker falls on the pay scale and then gives a beginning wage. Starting pay is also not negotiated by the firm.
What do compensation experts think?
Expensify's method, according to compensation specialists, is relatively uncommon. While having a peer rating inside your team is typical, having one across the entire organization is unusual.
"It sounds like what they are trying to do is democratize the performance evaluation," said Julian Zlatev, an assistant professor at Harvard Business School. He analyzes topics, including people's decisions to underline their worth to a business.
If you don't know the individuals you're being asked to rate, Zlatev pointed out that there may be problems. At some point, employees will be asked to rank individuals with whom they don’t interact with much and with little context. And “without any context, the manager may fall back on gender stereotypes, one study suggests," Zlatev said.
Expensify's compensation voting procedure may not be appropriate for all businesses
In order to fairly evaluate coworkers, employees need a certain level of familiarity with their job roles, which will be increasingly harder as a company grows.
Barrett acknowledges the strategy may not be appropriate for many businesses, particularly those with typical hierarchical systems. As it has no specific managers, Expensify is a flat and transparent organization. He did say, though, that he is open to making changes to the compensation voting process, and that the organization has already made modifications to the process due to employee input throughout the years.
At the same time, Expensify’s compensation strategy may be responsible for boosting retention. “The average tenure at Expensify is four years, compared with some bigger tech companies who see workers leave after about two years," said Barrett.