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Why this tech company awards pay raises based on employee vote, not negotiations

Posted by Neha De

January 10, 2022    |     5-minute read (954 words)

Oregon-based Expensify is taking a fresh approach to how its workers receive pay raises, according to an article on CBS News. The employees at Expensify vote on their fellow employees’ pay, including that of the chief executive officer, David Barrett. 

The employees are not even allowed to negotiate. According to Barrett, the company moved to ban salary negotiations in part because it rewards people based on their negotiation skills as opposed to their performance: "You don't get what you deserve, you get what you negotiate."

He added, “Pay is based on your coworkers’ assessment of your performance and broader contributions to the company. It controls for internal bias because there is no manager you have to suck up to. The only way you can game the system is by kicking ass. You win by being amazing.” 

Expensify’s approach to setting pay comes at a time when an increasing number of states and localities are enacting laws banning organizations from asking about a job applicant’s pay history because it tends to lock women and people of color — who historically have been paid less for the same job — into lower salaries. 

How Expensify's compensation review works

The evaluation process is voluntary for its 140 employees. The company asks them to participate, and most of them do. They can choose to opt out, but their pay is still set by vote.

There are several reasons why some employees may choose not to participate. “The voting process takes about 10 hours to complete, while the company repeats the process every six months. The voting requires so much time because each employee is shown a pair of workers, side by side, with their names and information about their accomplishments during the previous six months. Then they are asked, ‘Which one should be paid more?’” according to Barrett. 

And because all employees are required to vote on every possible pairing, they end up voting on more than 9,000 possible pairs — such as comparing CEO Barrett against every other employee in the company.

“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. Next, workers are ranked on a scale from 1 to 140, reflecting Expensify's headcount. 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. No one's pay is cut,” Barrett explained. 

The CEO’s compensation is also set the same way. Expensify’s board of directors sets Barrett's pay. It relies on the votes from the compensation review process to determine the amount.

What about new hires? Initial pay for new hires is determined through the ranking system. After the interview, the company decides where a hire sits on the curve and then offers a starting salary based on that. The company does not negotiate starting salaries, either.

What do the experts say?

Compensation experts believe Expensify’s system is quite unusual. Jennifer E. Dannals, an assistant professor of business administration at Dartmouth College whose research focuses on how people and teams interact, including biases in negotiation, said, while it is not uncommon to have a peer rating within your team, it is unusual to have it within the entire company. Dannals added, “It seems like everyone has a voice in how this decision is made — there is something more empowering about it. Employees feel it’s a black box sometimes.” 

Harvard Business School assistant professor Julian Zlatev, who studies issues such as the choices people make to reinforce their value to a company, observed, “It sounds like what they are trying to do is democratize the performance evaluation.” 

Zlatev pointed out that there could be issues if you don't know the people you are being asked to rank. He said, “You will inevitably be ranking people you don't have a lot to do with on a day-to-day basis. If you are asking about direct comparisons between someone in one area versus another, it feels like comparing apples and oranges.” 

Zlatev also noted, “Some research suggests that evaluating a worker in comparison with another employee can remove some bias. For instance, a manager is more likely to judge a worker's actual performance when comparing her against another worker. But without any context, the manager may fall back on gender stereotypes, one study suggests.” 

Expensify’s compensation voting process may not suit all employers

Shelly Holt, chief people officer of compensation company Payscale, believes that while Expensify’s approach is creative, it is unlikely to work for every organization. She said, “To accurately judge coworkers, you need a fair amount of knowledge about their jobs and goals.” 

“As you get bigger, this is much harder to do,” Holt noted.

Holt also said, “She would be concerned that even more bias could creep into the process, rather than eliminating it. It could turn into a popularity contest over who is positioned to be top on that leaderboard.”

Barrett agrees that this approach may not be right for all companies, especially traditional organizations with hierarchical structures. (Expensify has a flat and transparent organization, with no dedicated managers.) However, he added that he is open to tweaking the compensation voting process. The company has already made changes over the years after receiving feedback from its employees.

Barrett also noted that while employees sometimes are not thrilled with their ranking after the companywide vote, Expensify’s approach to pay and management has “helped keep employees at the company longer than most tech firms. The average tenure at Expensify is four years, compared with some bigger tech companies who see workers leave after about two years.” 

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