Autonomy vs. Fairness

An idea has appeared in the past few days that looks like it might be turned into a business. Two other people have expressed interest in participating, and this has forced me to seriously start thinking about how to structure it -- in particular, how do you structure a company so that, from the very beginning and through all stages of growth, people feel like ... well, I almost said "the company is treating them fairly," but that seems like a bad start, because it separates "the company" from the people who ARE the company. I'll fall back to vagueness: ... so that people feel like things are fair.

In Drive, Daniel Pink makes a researched-backed case that people want three things out of their work experience: (1) autonomy, (2) to feel useful, and (3) working for a higher purpose (these probably apply to "life in general"). Let's assume the second two factors will happen, and focus on autonomy (one of the primary factors that drove me personally away from working at a "regular job").

So, in this new company, everyone should be autonomous. I definitely want that for myself. So do senior managers in industrial-age companies; one of the perks is that they can go play golf or whatever in the middle of the day. But in those companies, the plebes feel abused by the powerful, because they have managers making sure they clock in and keep their butts in seats all day, regardless of how productive they actually are. By making everyone autonomous (as in a ROWE -- Results-Only Work Environment), we eliminate all the overhead of watching everyone's behavior, giving them permission to take their kids to the dentist, etc. If people want to work -- and let's assume there will be some process that allows people who don't want to work to evolve or move on (yes, we'll probably have to create it at some point, but let's assume it's there) -- and people want  to do things in the best interest of the company, then we can save a lot of money by eliminating all the overhead that industrial-age companies spend to make sure that people behave properly.

But now we encounter the problem of compensation, which is a problem for several reasons:

1. Fairness. I think there are lots of studies showing that we are hard-wired for fairness, but if you don't believe it, observe little kids. They are constantly scanning for unfairness. If a system is unfair, people spend a lot of time and energy complaining about it, which is wasted energy for the company.
2. Meritocracy. I have all my education and experience, and another member might have specific talents in a particular technology that we especially need, while a third person might be "just an artist." In an industrial-age company, we have to figure out what each person is "worth," even though the artist might end up contributing more than the highly skilled programmer. We can't know ahead of time, or probably ever, who might end up contributing more.
3. Laziness. I'm describing myself here: sometimes I don't feel like working, and I'd rather do something else than pretend to work. If I'd rather do something else, I don't want to feel guilty that I "should" be working. If I can work when I feel inspired to work, then the time I put in during those periods is going to be much more valuable to the team than if I'm punching a clock and sitting around accumulating time, uninspired and unproductive.
4. Self-funding. Even if a business idea will start to earn money as soon as it's launched, there will be time invested before any amount of money comes in. I would sure prefer not to sell the future of the company to a financial investor right away (if we could even get one, plus the person(s) who chase investors end up doing that job full-time). One of my goals for this new organizational structure is to make self-funding -- typically by investing time during the initial development phase -- as easy as possible, and I think that will only happen if everyone who invests time feels like the results are fair.

For myself, even if I end up being CEO with my master's degree and whatever experience and talents I bring to the organization -- despite any of that, I'd rather work for an organization where everyone is happy and everyone takes care of themselves and feels like it's a great experience all around, than to be paid the big bucks because I'm somehow more important. I don't want to explain to people why they are worth less than me or anyone else. Working for the company should be an obvious no-brainer, and if it isn't obvious to someone then that person wouldn't even want to work with us because they wouldn't fit the culture. Obvious enough that someone couldn't look at it and complain about anything being unfair -- or if they did complain (as in "I'm more important than these other people"), they wouldn't fit and wouldn't even be interested. The right candidates would be ones who (like at Zappos) could see that perhaps the largest part of the compensation of working at this company is that you get to hang out and have fun with the rest of the people working there, and as long as you get paid fairly the pay doesn't matter very much.

There's a story that when Brad Bird first started working at Pixar, he went around to all the teams and asked for their worst team members, and from that he created the team that started turning out the Pixar mega-hits. Those people didn't fit into the normal structure because they were hyper-creative and just didn't have the right environment, which Bird provided. Those are the people that want a lot more than just a paycheck.

The kind of organizational structure I create will be about the experience and not the paycheck (because that's what I want), and the only way I can see doing that is with a flat pay structure. Everyone has their talents and credentials and all, but we can't really know what someone will actually end up contributing. We just can't, and we don't even want it to be about that (it should be about fun, first and foremost), so let's take the whole issue off the table by making it flat. Then the only people who complain are the people who don't get it, and we don't really want to work with them.

This solves problems, and brings up new ones. The problems it solves are things like up-front investment: if everyone benefits fairly, then they can invest time up-front without worry; they can focus on the success of the company rather than what they will take from it. It solves the "what am I worth and am I worth more than you" issue. It solves the "I am paid more and therefore I'm better than you and my opinion is worth more" issue. It solves the "playing the power hierarchy" issue. It removes the need to get promoted from a job you love to one that you don't because you get paid more. It probably solves a mess of other problems that I haven't even seen yet.

One problem it creates is an old one: how do we compensate, then? One way would be to divide the profits evenly on a quarterly or semi-annual basis, and that is the sum total of your compensation (don't panic, more about this later).

I have a problem with this, which is that I might not want or be able to work as much during some periods, and I might want or need to work more during other periods. Salary-like compensation might work out fine, but I personally wouldn't feel free to take time off, or work on some other project, if I was always getting an even split regardless of how much I actually worked. I want the freedom to not work without feeling guilty about it.

The only way (right now) that I can see doing this is by hourly compensation. If I put in a lot of hours, regardless of the task I'm working on, I should get compensated for those hours, and if I would rather be taking time to do something else, then I should not be getting paid for hours I'm not putting in, so I can freely do what I want with my time, without guilt. Long ago when worked at regular jobs, I didn't ask for time off, I just informed them that I was going to be gone and that they shouldn't pay me for that time, because I wanted that freedom (this, of course, would frustrate some people because that's the way a salary is supposed to work -- there were supposed to be times when you worked less to compensate for the times you worked more -- but it was really just a way to get you to put in extra unpaid hours).

And what if, during the startup phase of a company when no one is getting paid, you were able to bank your hours and cash them in at some later time when the company started making a profit. For that matter, you could bank your hours at any time and cash them in at a later time when the company is making a profit, to get an appropriate share of the current profits. This would even allow for a kind of speculation -- you think the company will do better in the future, so you'll only cash in the hours that you actually need to survive right now and leave the others in the hour bank to cash in during a quarter after the company has made good profits, at which time those hours will be worth more (this also gives incentive to help the company do better). I'm aware there would be a stock-market-like effect so if more people cashed out their hours during a particular period, it would lower the value of an hour, but I don't necessarily think that's a bad thing. The market effect also gives incentive to raise the value of an hour (make the company do better) and to put more time in if you are inclined, but also if you want or need more time doing something else you can do that without guilt. It pays you for your time, and optimally incentivizes you towards enlightened self-interest: the better the company does, the better you and everyone else in the company does.

Note that this also changes the nature of full- vs. part-time employment. A company organized this way could easily support many part-time employees and thereby gain great benefits by having all those resources without requiring that a person work exclusively for them. Those so inclined could work less, or divide their time among several companies.

I think the hour-market system (each hour you put it is sort of like buying a stock share) could encourage greater transparency and honesty throughout the company, since (for example) senior management gets no special leverage or bonuses or other advantage for tricky doings. If the company needs to spend money during a certain period to buy equipment or otherwise expand operations, it is in the company's interest to tell everyone this is happening, because during that period it would lower the value of a cashed-out hour, which would incentivize everyone to not cash out their hours, which will leave more free cash for the company to spend on the improvements. Everyone can truly believe that "we're all in this together," and act accordingly.

Speaking of transparency, I think the best way to manage hours is for everyone to (A) keep their own time and (B) post their time and what they are working on in a public spreadsheet, so anyone else in the company can see it. The same holds true for things like travel expenses: if all my expenses are recorded in a public spreadsheet, everyone knows if I start treating myself on the company dime; embarrassment is going to make me frugal. This leverages social pressure to behave well, eliminating the need to have paid overseers (Netflix uses this approach for travel expenses). Just like an open-source software project, everything should be transparent within the company by default (there had better be a very good and well agreed-upon reason to make something hidden), and anything that can be made transparent to the world should be as well (Zappos is as transparent to the world as possible).

One important place where I think hour-transparency could pay off is in the difficult area where someone turns out not to be a good fit in the company. Zappos works very hard to make sure that someone can do the job and -- equally importantly -- is a good cultural fit with the company before hiring that person. Unfortunately I did not find out what they do if someone turns out, after all their process, not to fit (but I've sent a follow-up question).

I'm only speaking intuitively here, but I think that transparency -- because it means you can't hide -- will encourage people to realize that they aren't a good fit, and to find someplace where they are (either within the company or at another company). It might be because you start logging fewer and fewer hours, and doing less, until you eventually realize you don't want to be there anymore. It might mean that you continue logging hours but you (and those around you) realize that you aren't accomplishing very much, either because you're not a good fit or you're simply uninspired and not being very productive. In the best of all possible organizational structures, no one would ever be fired, but instead would achieve an awareness that they need to move on, and make the move themselves. I don't know if transparency will be enough to achieve that, but it is certainly a starting point. I think that making it a public forum rather than putting the decision on the shoulders of a small number will produce a better effect, at the very least.

One of the reasons that the hour-banking system feels right to me is all the questions and issues that vanish because of it. How much does anyone get paid? Answered. What if you put in more or less time? Answered. What if you don't feel like working, have something else you want/need to do, want to take some time off? Just do it -- your time is always going to vary from week to week anyway, so it's not an issue (it's probably good to let people who are depending on you know if you're going to be unavailable).

It might even be a partial solution to a retirement fund: bank hours now and use them during retirement. On that note, it might make retirement obsolete: why should you suddenly go from fully employed to retired? Why not just slow down, and instead of cutting off all that experience suddenly, allow someone to continue putting in however many hours they want, still able to feel useful and productive and contribute to the company? That sounds a lot better to me than the usual practice of being kicked to the curb just because you reach a certain age, thereby throwing away a resource the company has been developing for many years.