For a while now I've pondered what a salary structure in a corporation would have to look like to be both egalitarian and keep everybody (except perhaps managers expecting millions for little work) happy.

It seems to me that a great deal of one's salary is determined not by how good you are but by how well you negotiated when you joined the company you're working for. This seems deeply unfair to everybody but sales people. (It seems especially unfair to women, who by dint of ten times less testosterone are at a disadvantage when aggression and confrontation are called for, as they certainly are in salary negotiations. I'm under the impression that a significant portion of the salary gap between sexes goes away when you control for aggressiveness, but as this is completely beside the point of this post, I hope you'll let me throw that comment out there without actually researching it at all.)

It seems to me that such a system should be sensitive to market conditions, but that that alone isn't enough. A first pass from the point of view would be to simply fix salary to a yearly review of average salaries in particular positions, perhaps at 80% of max to stay competitive. The problem there is it doesn't give people anything to strive for, nor any reward for any behaviour except not getting fired. Ideally a good salary system should encourage particular behaviours that the designer has in mind. I chose retention.

Therefore, my basic idea is this:

• Salaries cannot automatically reduce. Reductions must come from a 2/3 vote of all stockholders, and must globally maintain the proportions listed below. Therefore, "unless the new value would be lower" should imagine to be liberally scattered throughout.
• The CFO may unilaterally add an increase of any kind to the company-wide non-managerial base salary calculation. Except as noted below, increasing the base salary for any subset of positions requires a 2/3 majority stockholder vote. In other words, it's easy to increase everybody's salary, but hard to favour one group, and impossible to favour managers.
• Once a year, the market salary for the local area for each position is determined, and the base salary for each position is set to 1.5 times the market average (where "1.5" was selected at random, and should be adjusted to keep the company reasonably able to hire people given its location and other intangibles like how compelling the work is).
• If the company is actively trying to recruit for a particular position and failing, the CFO may add up to 10% to the base salary for that position, additive, per month the position goes unfilled. This effects all holders of that position at the next pay period.
• A non-manager's actual salary is the position's base salary plus 5% for each six months, additive, to a maximum of 200% (total of 3 times the base). For example, someone with the company for 5 years would make 1.5 times the base salary.
• A manager's base salary is the average of the base salaries of all of their non-managerial reports (direct or otherwise); so for the CEO it's the average of the base salary of everyone in the company. Added to this is the usual seniority calculation above, plus an additional 1% per non-managerial report used is the base salary calculation, to a total maximum of 400% (i.e. five time the base salary).
  • It is worth noting that the seniority of the people reporting to the manager is not relevant to the manager's salary. This is because a manager needs to always be ready to fire an employee if things aren't working out, and including their report's seniority would discourage that.
  • It is also worth noting that the only way for a manager to have a very high salary in this scheme is for their subordinates to have a very high salary. For a manager to have a million dollar salary, the lowest the average of their subordinates' base salary can be is $200,000, and that requires the manager to have been with the company for twenty years. The point is to encourage globally high salaries within the company and long-term retention.
• An employee may always have their salary calculated in the non-managerial fashion if their job does not primarily consist of managing other people; the CFO comes immediately to mind as a putatively managerial position for whom the managerial calculation would not be very fair.

The law of unintended consequences means that something would almost certainly go horribly wrong, but it certainly seems worth a shot. The only problem that's obvious to me is collusion to keep incompetent employees from getting fired, and I think that can be counteracted by fostering a culture of excellence. Certainly I can't imagine my current employer (EngineYard) putting up with that kind of crap.