How Fog Creek Software Pays Developers
When Joel Spolsky and Michael Pryor founded Fog Creek Software, their vision was of a company run by people whose technical backgrounds meant they understood what really motivates programmers. The company would hire the best, make them comfortable, pay them well, and then get out of the way so they could create great products. Early on, Spolsky and Pryor set out to develop a pay structure that would be consistent with the company’s mission. They decided that the system should be so objective that there would be no questioning or judgment calls about which employee earns how much. And the results would be so objective and fair that there would be no incentive to be secretive about what any employee earns. Like any computer pro, Spolsky went online for ideas. He discovered that Construx, a software consulting firm, had posted online an outline for measuring levels of the software profession. Using this as a starting point, Spolsky created a job structure for Fog Creek. The structure is straightforward: every employee is assigned to a level between 8 (summer interns) and 16 (chief executive officer). Assignment to a level is not a judgment call but is based on a formula incorporating the employee’s experience, skills, and scope of responsibility.
• Experience is measured as the number of years of fulltime experience in the field of the employee’s job at Fog Creek, counting only years after the employee finished school. At any given level, every employee earns the same salary.
• Skills are defined with descriptive statements along a continuum. For example, at the lowest level is a programmer “learning the basic principles of software engineering” who needs close supervision. At the other extreme would be someone who makes a unique contribution—a programmer who “has consistently had major success during participation in all aspects of small and large projects.”
• Scope of responsibility ranges from primarily supporting another employee to running multiple projects. Based on this job structure, Spolsky created a chart that is used for assigning each employee to a level. Spolsky also created a chart that indicates the base salary for each level, based on market salaries obtained from sources such as Salary.com and Glassdoor.com . Each employee earns the amount specified by the chart. Every year, the company’s managers review each employee’s work to see if the employee should be assigned to a new level. Every employee who is reassigned then earns the amount associated with the new level. Employees also earn a bonus based on the company’s profits for the year. Fog Creek’s system has been challenged by the stiff competition for programmer talent. If the company paid extra to lure in new employees at a higher rate, the existing employees would demand a raise or see their treatment as unfair. Rather than expect employees to accept the “salary inversion” of newer employees earning more than their more-experienced colleagues, Fog Creek has responded to talent crunches by raising the salaries of all employees at a given level to make them as high as the going market rate for that level. Spolsky believes that this solution is expensive but essential for maintaining equity and keeping talent. SOURCES: Joel Spolsky, “Why I Never Let Employees Negotiate a Raise,” Inc., April 2009, www.inc.com ; and Fog Creek Software, “Careers” and “About the Company,” corporate Web site, www.fogcreek.com , accessed April 21, 2010.
1. How well does Fog Creek Software’s pay structure meet
(a) the legal requirement of equal pay for equal work;
(b) the conditions of product markets; and (c) the conditions of labor markets?
2. Joel Spolsky set out to create a pay structure that is objective. Based on the information given, how objective would you say Fog Creek’s system is? What other qualities besides objectivity do you think Fog Creek’s employees might care about?
3. Fog Creek is a small company with a few dozen technical employees. How might its pay structure need to change (if at all) if the company grows to hundreds of employees? Would these changes likely appeal to the employees?
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