How to get paid at Fog Creek

Joel Spolsky shared his company's compensation system in one of the "serious" April Fool's Day posts:

In Fog Creek's system, every employee is assigned a level. Currently, these levels range from 8 (for a summer intern) to 16 (for me). Your level is calculated formulaically based on three factors: experience, scope of responsibility, and skill set. Once we determine your number, you make the same as every other employee at that level.

I always appreciate companies that try new compensation schemes, and even more if they share it with the world.

Compensation is one of the critical levers that contribute to the culture of a company. At the same time, the culture of a company will greatly affect how compensation gets interpreted. Different sized companies with different cultures in different industries need different compensation systems. There's no one right answer.

Joel has clearly thought a lot about what he wants compensation to say about and how he wants it to affect his company. That, in itself, is at least half the battle.

The best part of Joel's system is that it prevents newcomers from making more money than the existing employees, which I see all the time. Most companies I've worked for just hire people, and rising market prices force salaries higher for the last one in the door -- even if people that already work there have equal skills, not to mention that they already understand the specific intricacies of the application and company processes.

Another underlying principle of Joel's system is to make everything transparent, so that everyone understands how their compensation is set. Lack of objectivity (or just the perception of it) really angers employees, either killing their motivation or resulting in their departure.

His system also removes favoritism, or at least discourages it by forcing it out to the open.

Two things prevent this structure from being more widely adopted:

1. Small companies usually spend little time thinking about organizational issues. They're completely focused on staying alive by developing new product and new customers. But that's a bit like not implementing daily builds or automated testing because the focus is on writing new code.
2. As a company grows larger, it requires increasing numbers of levels. Fog Creek currently has 9 different salaries in any given year. Given that they probably have less than 200 people, they might have 25 people in a level. Now imagine they have 2,000 people, resulting in over 250 people in some levels. The range of skills at each level will vary much greater; i.e., Ann, a level 11 who just missed getting level 12, will be closer in skill and contribution to Bob, who just barely made level 12, than to Clark, who just barely made level 11. The problem with having more buckets, though, is that in makes the gradations harder to define in a simple chart like Fog Creek's.

Fog Creek will eventually have to re-tool their compensation system, either because of growth or lack of it. But, I don't think it's a stretch at all to say that a lot of their success comes from strategic thinking about organizational issues such as compensation.