What’s An Agile Paycheck Look Like? A glimpse into Agile Learning Labs’ new compensation model

What kind of agile training company would we be if we didn’t try to build our company from the ground up using agile methods for everything from team decision making to hiring to how we pay ourselves? Here’s how we arrived at a radical new way of paying ourselves. (Hint: if you’ve seen the heist movie Ocean’s 11, our team compensation model is a lot like theirs.)

Agile Learning Labs has gone from two full-timers to six in little over two years (plus an outstanding stable of independent contractors). In the beginning, of course, Chris paid himself nothing, as one does in a startup. I was the first salaried employee. I got a paycheck, while Chris got equity. As we grew, we added a commission-based sales position. To our great joy, this individual made more in the first year than either Chris or I had in the first three: this meant the company was up and running and making a go of it.

Cheaper, perhaps, but scrum says the ideal team size is 7, plus or minus 2.

We grew quickly from three to six—fleshing out our operations, marketing and training staff. In our haste and inexperience, we looked to the real world for our guesstimates on how much to pay people for certain functions—and then adjusted down for the startup nature of our business. The promise of more to come was sincere, but figuring out how and when was always on the back burner.

According to 37 Signals’ Rework, we waited just long enough: we didn’t address our compensation model until it started to cause us pain.

We finally addressed the issue when we hired yet another person, who came on board on the condition that we resolve our “compensation issues.” Sometimes it takes outside perspective to get things to move, even on the most agile team.

First, we looked at where we were now: how we were paying people, and why. We had cobbled together a mish-mash of salaries here, hourly wages there, percentages, commissions and training fees, all of which had been individually negotiated. Some people were being paid in apples, some in oranges, and still others in durians and bing cherries. It was an unsustainable mess. What to do about it?

Conventional wisdom wasn’t helpful. We realized that the more commonplace model for a company like ours—be it a training company, or an architectural firm, medical office or a law partnership—was emphatically hierarchical. At the top, you have your “rock star” performers, those who deliver billable services and are highly compensated for doing so. Below these you have a highly competent cadre of administrative back-end earning steady if middling wages. And below these, you have the “interns” who will someday be rock stars themselves, leap-frogging right over the hard workers. Teams like this have well-defined roles, a steep pecking order, and the longstanding resentments to go with those things.

Is your team full of Rock Stars? Hint: that might not be a good thing.

In most conventional settings, agile trainers are no different from most doctors, lawyers or rock stars. That is, they’re uniquely educated, talented individuals who made themselves what they are, and expect to reap the rewards of the risks they took to get to the top of their field. They cannot do it alone, however. It takes a whole team to run a training company. One trainer we know once referred to the entire back office as “just admin.” Well, some people watch way too much Mad Men.

On an agile team, Joan would be Don's equal--because she is.

You may only have met our bright, shiny trainers and coaches, but here’s what Agile Learning Labs’ back end really looks like: Our sales process is actually part of the training, as Steve doesn’t so much “sell” training as serve as a Dr. House-like diagnostician, figuring out what each client needs, and matching them to a trainer, coach or solution. It’s literally true that the diagnosis is half the cure, so if you wanted to, you could make a case that the trainers are Steve’s support staff instead of the other way around. Betty, to continue the medical metaphor, keeps the operation breathing much the way an anesthesiologist does. Then you have our “marketing” department. To again quote Rework: everything we do is marketing, and we know it. Our marketing guru is an internal coach as much as an external ambassador. And unlike any other training company we know of, we have a creative department that includes a fully-fledged publishing operation. When our trainers and coaches walk into a scrum room, they do so carrying a book on the topic, produced by an agile publishing company that we own. As a team, we are a remarkable powerhouse.

Ricardo Semler's book Maverick

So as a team, we dove in and did a lot of research on existing compensation models. We looked at the profit-sharing model used by Make Architects, at the democratic innovations afoot at Richard Semler’s Semco, at Menlo Innovations and The Hacking Business Model, and many, many more. But in the end, we were most influenced by… scrum.

Yes, to guide us in how we should think about compensating such a team, we thought we’d look at what we teach our clients about the nature of teams and incentives. We teach people to flatten their hierarchies, break down their silos, treat everyone as valuable, and to make sure this is true by building teams where all members have vital skills that mesh together. We teach them to give everyone a voice, to incent co-operation and collaboration rather than competition, to emphasize cross-functionality over status. We teach them that by empowering the people doing the work to decide how the work is done, you stimulate productivity.

Al gets a cut... not this Al.

So here is what we ultimately decided to try: Agile Learning Labs would pay its core team of six people equally. Period. We established a low base salary, to be paid out weekly. We set a base “cushion” or cash reserve for the company, an amount we needed to keep in the bank. Any profits above and beyond that cushion, would be divided by seven and distributed equally. (Seven? Agile Learning Labs, or “Al” for short, would get his cut, too, to grow the cushion.) We ran a lot of numbers, and came up with best, worst, and middling scenarios where this might land us all financially, and decided we were all more than willing to put our money where our mouths are. The operative word here is “try.” We plan on inspecting and adapting this new model frequently as we continue to work, thrive and grow.

Salaries? What a quaint idea! That's so last-millenium!

What this compensation plan has stimulated in the scant few weeks it’s been in place is amazing. We communicate better now, shooting email threads across the organization to discuss strategic decisions. We have begun to apply the concept of “business value” to everything we do. We started a backlog in order to prioritize projects, and every single team member has been speaking up more frequently across a far broader range of topics than ever before. The sense of shared destiny is palpable. The heightened sense of trust is profound, and mutes any accompanying notion of increased risk.

The risk is real. In the first month, every single person in the company made less than they did the month before, as we paid off lingering commissions and fees, and brought the cushion up to par. But at the same time, we could see that without those lingering debts from our old model, the same revenues would have given us each a comfortable month—and next month looks pretty great. Those of us who are finally enjoying a seat at the profit table feel immense appreciation for those who took a temporary hit in order to set us straight, but none of us are viewing it as a “sacrifice.” We’ve defined success as this: everyone makes more money this year than they did last year, including last year’s highest earning team members.

One of our operating values as a company is “Crafting engagements in which everybody wins.” So we’re betting on our new compensation model super-charging our productivity. We’re hoping that Agile Learning Labs, and all of its team members, contractors, students and clients will be better off than ever, now that we’re walking our talk in a whole new way. We’ll be planning, iterating, inspecting and adapting as we go, and we’ll keep you posted on what we learn.

This entry was posted in agile, startups, teams, work. Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

4 Comments

  1. Posted October 1, 2011 at 6:57 am | Permalink

    I have read the whole article several times thinking that I will find a number (representing the salary of an Agile project manager or an Agile team member), but couldn’t find any…

    In any case, your post is really well written…

    As for a team full or rock stars, some people may disagree with you, see point #1 in this article.

    • Posted October 1, 2011 at 3:16 pm | Permalink

      We don’t actually know what our pay will be, as it’s a percentage of profits. The “base” salary we pay is not a true salary–it’s a low figure (about twice minimum wage) meant to qualify us for health insurance–we would have gone for a pure profit share without any base, but insurance companies want to see wages, not profit shares, when figuring eligibility.

      I’ll be happy to post more about how this compensation model shakes out as we get more experience with it under our belts.

  2. Posted November 7, 2011 at 10:14 pm | Permalink

    Wow, what a great example of how to turn everyone into a rock star performer!

  3. Alan Atlas
    Posted February 9, 2012 at 5:10 am | Permalink

    Nice article, and the idea is a lovely one. You have taken profit-sharing to the people and it looks right to me. I am so happy to hear of your success! And don’t forget, I contributed when I bought those copies of the book…

    Now I am trying to figure out what it would look like to extend this model to a larger private company and then to a shareholder-owned company in a hot technology space where employees are poached from other companies with cash and other goodies. Do you think you could make it work?

    I’m not being negative here. Most of the companies I work with that ask about compensation issues are one of the two kinds I mentioned above and not a small startup like you, so I’m just groping around for ideas. If you have any I’d love to hear them from your perspective.

    Thanks, and again…way ta go!

Post a Comment

Your email is never published nor shared. Required fields are marked *

*
*

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>