Fixed pay is the fixed amount of salary that an employee gets at the end of the month (or twice a month, as is customary in the US). As Rolf Baarda mentioned in his book, 'Agile Belonen' (Agile Renumeration): "The purpose of fixed pay is to compensate for the quality of an employee. Quality is something that an employee brings in to fulfil his or her responsibilities. It compensates your added value: your knowledge and skills needed for the job and the problem-solving ability to apply in a work situation. In fact, this fixed form of compensation values what a person has acquired over the years in terms of knowledge and skills."
But, there is no one-size-fits-all solution as to exactly how you should reward your people. At an early-stage company, you can certainly expect a lower salary than the industry level, no matter what your previous experience is. As the company grows, the salaries will grow closer to a decent market rate.
But then there are also several choices you can make regarding your remuneration structure. Expert systems, such as job grading based on an analytical point system, still occur in classically managed companies. Here, the function is still the main focus, and a system determines what a function should be paid. In constantly changing organizations with little to no fixed functions, your personal added value becomes very important. In this case, it makes more sense to choose a different remuneration system. There are 5 different systems that we’ve gathered as example.
Google spent years trying to keep the retention rate of top talent as high as possible. They decided on an unconventional strategy: to pay 'unfairly'.
Dutch service provider Guidion has a form of compensation that looks quite similar to the traditional collective employment agreements with fixed salary increases on the surface. But their version has a modern twist and a strong vision behind it.
Full transparency through a salary calculator, the single application for the DevOps lifecycle GitLab tackled their compensation in a refreshing way.
There are also companies that have not set up or defined a fixed compensation structure, but where clarity rules, such as bunq. "Your pay strategy should be in line with your company strategy as a whole," Ali Niknam, founder and CEO of bunq says.
FAQ: Fixed Salary
What should I do if I want to hire someone with a much higher salary than the ones who have been on board for a long time? Ask yourself whether this is because the new hire can bring more value and experience. If so, you can explain very well why the salary is substantially more. If this isn’t the case and the new hire’s experience and responsibilities are similar to those who have been with you for a longer time, the high salary isn’t justifiable. You will also have to adjust your other employees’ salaries in this case, possibly step by step. If you don’t do this, you create internal commotion (people talk about it anyway), increasing the risk of colleagues leaving. Keep in mind that there's always a sense of justice attached to salary. But it’s also essential to look at the overall picture and take every aspect of rewards into account. An early joiner might have a lower monthly salary but get more shares or a bonus.
What if I would like to hire senior people, but their salary exceeds my and other managers’ current salaries? This is a common issue in scaleups. At some point, you need people who bring in experience and who will receive a higher salary as a result. Senior hires help companies take the next step, so their knowledge and experience are vital. A very experienced specialist can make more money than their direct manager, and a very experienced manager can earn more than a relatively junior CEO. Consider the added value of a person and what they can bring to move the company forward. If you have a clear idea about this, you will also be able to explain it well in case of concerns.
What if there are large pay differences between my employees? A reality where employees don’t talk to each other about pay doesn’t exist. Make sure that people with similar experience and responsibilities get about the same salary. Fairness plays a vital role in rewards. Unfair salary distribution will increase dissatisfaction, causing people to leave. Only differentiate salaries if you can clearly indicate the difference in terms of added value.
Should the salaries within my organization be fully transparent? There are companies where salaries are completely transparent, to the satisfaction of the team. However, in the Netherlands, privacy regulations don’t allow for this. If you prefer transparency without breaking any rules, you can choose to be as transparent as possible on a process level without disclosing individual salaries. You can explain how your remuneration system works and the salary range for a position.
Should I raise with fixed amounts or percentages, and why? There is no right or wrong answer to this question, but there are a few elements that you should take into account. What is your company vision, and how can you translate it into a rewards philosophy? How fast do you want someone to be able to grow in their salary? You should be aware that 3% of 2.000 EUR is different from 3% of 8.000 EUR. You can choose to go for an increase with a fixed percentage. In this case, the absolute salary increase for colleagues with a lower salary is relatively smaller. But if people in junior roles grow and change roles quickly, they will have a more significant increase. If you decide to go for fixed amounts, people with lower salaries grow relatively faster than people with a higher salary. It can still be the right decision if you want people to take bigger steps in their early careers.
Can I ask candidates about their current salary? The number of countries making it illegal to ask for someone's current salary or salary indication is understandably increasing. Asking for salary information can worsen the pay gap issues among women or ethnic minorities, among others. Someone's current salary isn’t a good starting point for salary negotiations. It doesn’t say anything about what would be a fair salary for the job you're offering. It can only offer insight into any past discrimination. Don’t let this factor direct the salary discussions. Pay what you believe the role and the person you’re hiring deserve. As a result of this, someone might get a significant raise. But, this is only fair, and besides that, you can do your bit to reduce the income gap.