Compensating flexible work
Flexible work is a big part of the future. But how do you practically compensate people with flexible work arrangements? Time to level-up your comp strategy.
First — optimize for outcomes and value creation instead of time spent. Hourly rates make sense in a world where X time = Y value (eg. manufacturing.) It makes no sense in knowledge work, where the right innovation returns incredible value.
Salary compensation is a step in the right direction. You disconnect reward from time spent. But… often, the value produced far outweighs the compensation.
Eg. even a great $250k salary for a designer, who refreshes your product, that increases acq + retention by 10% in a year… depending on the company, that 10% could be $1mm of value (roughly ~2.5% to the designer in salary.)
Aligning via sharing the pie
Enter equity, the great aligner. “If we all do well, you do well.” Having a scaled shared interest is a powerful motivator for great work.
But… many challenges to equity.
It’s a fixed pie, and once given out, it’s tough to get back. Lots of mechanics have evolved to deal with risk: vesting + ESOP/options + different classes of equity being the primary levers used in modern businesses.
And how do you value the work? You don’t know ahead of time how successful a project will be, and putting together aligned compensation ends up being a stab in the dark. So falling back to hourly rates, fixed project scopes, salary, and equity are EZ MODE. “It’s the standard, it works”
Other ownership models exist: employee-owned co-ops have existed for a long time. REI, Bob’s Red Mill, Ace Hardware, AP, Mondragon, early AutoDesk. And now, tech (eg. DAOs) is exploring software to reduce overhead of running a democratic, decentralized, member-owned orgs. But there’s a lot to learn, there’s no playbook or best practices yet, let alone systems to make this accessible to most people.
Outside of equity, everyone’s familiar with commission work. It’s standard in sales, real estate, affiliate/influencer marketing, etc. — and it works. Finding ways to balance trust and reward exist, eg. capping upside, setting a time horizon on payouts, pairing with minimum project pay or a salary, etc.
Practical steps to make flex comp work
So how do we practically compensate in flexible work situations? I can offer my best guess, and how I’ve been handling it. This is a WIP, it changes with each engagement, and I ask that you share your ideas and approaches so we can do this better together!
1st - 📣 We signal that flexible work is possible, available, and normal at our company. Too many job reqs are “full-time only”, and the flexible work arrangements are usually found by word of mouth (aka limited to the highly networked) and “felt out”
2nd - 📌 We set clear expectations for the work and outcomes. Role, jobs to be done, communication style (async by default), clear guesses of timelines, others involved in the project, etc. Write these down so there’s less room for misinterpretation.
3rd - 🗺️ We offer multiple paths to comp. Different people want different things. Someone might prefer hourly rates because they feel better about calculating income and costs that way. Some might be totally down for equity (and we’re clear what that means - how it vests, options vs RSUs, how we’re looking at valuation/liquidity events, etc.)
- How do you think about “time spent”? Again, our focus is outcomes. But time spent is a helpful frame for both parties to plan commitments and shouldn’t be thrown away. Often, we’ll write up rough expectations… ~5hrs per month, or ~1 day out of your workweek. These are guidelines, only one reference for comp. We have standards for each path (eg. for hourly rates, we never pay less than $35/hr.) Having a baseline or minimum commitment makes it easier to know when you have work worth investing in to. Lots to dissect here, for another thread.
4th - ⚡️ We acknowledge seasonality. Someone may have more space now, and less space later; your biz may only need work this quarter. It’s a good thing to acknowledge energy/time appetites in your work agreements, and structure comp accordingly.
“But Paul, this all sounds like a shit load of work.”
No doubt. It’s far easier to say “hmmm we need an engineer to build our app, here’s a similar job posting, and market rate, let’s use that.” Cool, you’ll just exclude the exponentially-growing talent market, people that could deeply accelerate your business and value creation.
The future will only get more distributed, so you’ll be ahead of the curve if you test the waters now.