“All people leaders can’t expect to be compensation experts, too,” says Lola Han of Kamsa, the compensation strategy platform.
That’s a relief! Still, you have onboarding, promotions, bonuses, and taking leave. Many actions that fall on a people leader or culture-builder’s shoulders interact with pay.
The bottom line is that you can’t build a positive work culture on top of dissatisfying pay, but this is about far more than dollar amounts. Keep scrolling to learn more about a few types of compensation structures and why they work for teams with great culture.
Three types of compensation structures (and who uses them)
Is this insider information or transparency as an organizational value? It varies. Many leaders have shared details about how they compensate people on HeyTaco’s podcast, Amazing Teams. Here’s what some have had to say over four seasons.
Option A: The flat-rate compensation strategy
Flat-rate pay can refer to getting paid a flat rate for tasks (regardless of hours) or giving everyone the same salary. The purported benefits of the strategy eliminate negotiations and gossip, as well as feelings of inequity.
The founder and CEO of insurance provider SafetyWing agrees that the model does reduce noise about money. People know going in what the job pays, and can reasonably assume that’s what the person next to them is earning. Want a raise? They’re distributed based on meeting predetermined revenue milestones, not seniority. That’s where this strategy can start feeling unfair to some, and it’s why their CEO makes clear that it won’t work for everyone.
At other organizations with flat hierarchies, flat rates can seem like common sense. The secret to pulling this off in many cases is offering a higher salary for all. If people are automatically being paid enough to cover the cost of living in their location, or even above and beyond, consider the situation handled. Everything else is a bonus.
| Money is no guarantee of loyalty. Recent research shows that flexibility nearly matches compensation in retention drivers. However, the hot new entry on the board is meaning. A good salary and a little WFH can draw people in. Purpose and belonging keep them around. If you want compensation chatter silenced by paying everyone the same thing, know what they’ll be looking for next. |
Option B: Merit, aka the pay-for-performance model
High performers get higher pay. Merit-based pay is a natural fit in some roles, such as sales. “Merit-based” isn’t just one of the types of compensation structures at places like Limble. It’s a core value.
Their CEO and founder, Bryan Christensen, tells a story about an SDR they hired as a teenager. “She went from making, I think originally it was like $65,000 a year, and now she's making like, $155k,” he says. He goes on to describe merit pay as a social contract, and this is a common thread among teams that are okay with their pay. They know how it works and what’s expected of them. No arguing, speculating, or suspicion.
The pitfalls? If output is more nebulously defined, merit models can be disruptive. Success is absolutely subjective in some industries. People who end up doing invisible work will split if their unbalanced load drags them down instead of earning them extra.
It can also mess with team cohesion when individual measurements interfere with group contributions.
| 🌱A law of nature? Salespeople may prefer the pay-for-performance model for two very specific psychological reasons. First, it puts them in control of their pay. They have agency over what they bring home. They put more in, and they get more out, satisfying their desire for distributive justice. |
Option C: Open salary bands
Bands fall into the more traditional way to pay. Employees know how pay is determined, but they may not know what everyone else is making. Transparency is adjustable here, or a spectrum, just like the pay itself.
Back to Lola Han of Kamsa. She believes many companies benefit from a compensation philosophy that makes sense for the type of role someone is taking on. “Do you want to meet the market, or lead the market?” Targeting the market median may be appropriate for non-technical jobs, while technical roles usually mean targeting a higher percentile. And don’t try to fill in gaps with perks like games and snacks; it won’t magically make pay seem fair or attract the best talent.
But how much should be known by employees themselves? Han takes a phased approach designed to reduce confusion employees may have about their futures. In other cases, it seems like the more involved or familiar with transparency a leader is, the more judicious they are with it.
Martin Gourdeau of Vacation Tracker will share numbers with the team, but only if they’re strictly business. “Your personal revenue has an impact on you and your family, and to me, that's personal information," he says.
| ∞ Where trust begins. Employees who understand pay decisions and are exposed to the objective criteria have more trust in their employers. Gen Z in particular perceives this as a plus. Pay transparency is a sign of pay equity, even if we don’t know exactly what everyone else earns. |
Flat vs. merit vs. banded: A side-by-side comparison
Need a TL;DR? Here’s the quick and dirty breakdown of each compensation type we tackled today.
| Model | Flat pay | Merit pay | Open salary bands |
|---|---|---|---|
| What it is | One fixed rate for a task or role, regardless of tenure, and not open to negotiation | Higher pay is the direct result of higher performance, be it reviews, KPIs, or company goals | Flexible, adjustable structures where the market, skills, and growth impact compensation |
| Best for | Entry-level/early stage, flat hierarchies, or an org willing to offer above-market salary | Places where output is clear and measurable, sales teams, other performance-centric environments | Companies with internal mobility, a mix of technical and non-technical roles, growth-oriented orgs, knowledge-based roles and industries |
| Key benefits | No salary politics or infighting over money | Drives productivity, keeps the focus on performing | Practical, can encourage retention since there’s room to grow |
| Potential drawbacks | A mix of tepid salary and tenure not being acknowledged can send people packing | Can make feelings of belonging more difficult; must be well-structured | If employees aren’t clear on the terms, they can easily speculate about inequity |
From compensation to total rewards (or, redefining what a “perk” is)
When companies don’t seek outside expertise–or can at least acknowledge the drawbacks of their chosen compensation strategy–perks come into play. Snack baskets and arcades are not part of a genuine EVP, though. Here’s how others look beyond base salary and make their teams great places to work.
Quitting the cash competition.
Morgan Witham’s small company, COLAB, was trying to attract the same people as Fortune 100 companies. She couldn’t compete with the pay, so she implemented a four-day work week. Reduced burnout, increased offer acceptance.
Marc Cendella of The Ladders is a listener. About 1/4th of the employees he asks want more money. The other 3/4ths are motivated by something else. They say, “I want a better mentor, I want better career growth…I want a shorter commute."
Growth without a ladder.
Speaking of growth, what does a tiny, flat company have to offer? That’s the question at gifting company Goody, but Katy Carrigan doesn’t ruminate over it. She empowers people to make their own best decisions with realistic expectations.
Ownership and performance are big focal points, not titles. The company continues retaining many of the same people they’ve had since founding. “[When employees] feel in the dark, they're not going to be as engaged. I'm very much in the overshare camp. I want people to know exactly what we're doing here, where we're at [and] what the goals are,” she says.
Where does recognition fit?
As we’re fond of saying, recognition is a cherry on top. It won’t compensate for compensation, but it makes decent compensation taste even sweeter. A workplace where one’s value isn’t solely determined by what a company spends on them has the edge.
The area to watch is when you start adding in rewards. If employees feel like they could be owed something more, rewards can feel like part of compensation. And then they aren’t so rewarding.
They also need to be symbolic and diverse. These qualities make them meaningful and prevent boredom. You can read more about this in our white paper, Designing Peer Recognition for Engagement.
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From flat structures to open salary bands, compensation success depends on employees getting what they expected from the start. The people leader’s challenge isn’t justifying or negotiating. Rather, it’s ensuring that everyone gets clear, honest explanations.
Without that foundation, “thank you” feels like a poor substitute for money. Don’t make recognition carry the weight of pay. Tell people what they get paid, how to grow, and how that was decided. Now they’re free to celebrate all of the tiny wins they accrue on their way to the next payday.
A lot of the companies you read about today do that with HeyTaco. You know the monetary value of a role. Now get to work on the unlimited value of your people.
