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At this tech company, workers vote on each other's pay raises

Tech company has workers vote on raises
Tech company Expensify has workers vote on each other's raises 05:36

Negotiating a pay raise makes many people uncomfortable, and it can actually work against some workers, such as women, who are often judged negatively when they ask their employer for more money. But one technology company claims to have an approach that sidesteps some of those pitfalls: All employees vote on their fellow workers' pay — including that of the chief executive — and negotiation is forbidden. 

Pay is based on your coworkers' assessment of your performance and broader contributions to the company, Expensify CEO David Barrett told CBS MoneyWatch. "It has a nice benefit — we think it controls for internal bias because there is no manager you have to suck up to," he said. "The only way you can game the system is by kicking ass. You win by being amazing."

The novel approach to setting pay at Expensify, whose tech helps people and companies file expenses, comes at a time when compensation practices are undergoing a transformation, with sites such as Glassdoor and Payscale providing more transparency to workers about what their colleagues earn. More states and localities are also enacting laws banning companies from asking about a job applicant's pay history because it often locks women and people of color — who historically have been paid less for the same job — into lower salaries. 

"Everyone has a voice"

Still, even amid such changes, compensation experts say Expensify's system is unusual.

"I haven't heard of a scheme quite like this," said Jennifer E. Dannals, an assistant professor of business administration at Dartmouth College whose research focuses on how people and teams interact, including biases in negotiation. "It's not uncommon to have a peer rating within your team, but it's unusual to have it within the entire company."

She added, "It seems like everyone has a voice in how this decision is made — there is something more empowering about it. Employees feel it's a black box sometimes."

At software maker Expensify, negotiating for pay is banned. "You don't get what you deserve, you get what you negotiate," CEO Davd Barrett says of traditional approaches to setting pay. Expensify

Barrett isn't averse to taking risks in how he steers the company. A month before the 2020 presidential election, he emailed the Expensify's 10 million customers with an atypical plea for a corporate executive: "Vote for Joe Biden," he urged them — or else risk damaging the nation's democracy. Some customers supported the approach, while others criticized it as a misuse of customer emails.

Expensify, a $3 billion company that went public in November, has had some ups and downs since then, reflecting in part the impact of the COVID-19 pandemic, which slammed business travel and thus the use of expense reports. Yet Barrett maintains that he wants Expensify to be a "socially conscious brand." He added, "It's ultimately good for business."

140 workers, 9,000 votes

So how does Expensify's compensation review work? First, the process is voluntary. Barrett said the company asks its 140 employees to participate, and most of them do. People can opt out, but their pay is still set by vote. 

One reason some workers may choose not to participate: The voting process takes about 10 hours to complete, while the company repeats the process every six months. The voting requires so much time because each employee is shown a pair of workers, side by side, with their names and information about their accomplishments during the previous six months. Then they are asked, "Which one should be paid more?"

An example of the pairing that Expensify employees see when they vote on each other's pay. Because every worker is compared against all of the 140 employees at the company, there are more than 9,000 matches that a single worker votes on. The voting process takes  roughly 10 hours, but CEO David Barrett thinks the process eliminates bias and results in fairer compensation practices. Expensify

Because each employee must vote on every possible pairing, each worker ends up voting on more than 9,000 possible pairs — such as comparing CEO Barrett against every other employee in the company. 

"There definitely have been weekends when I spent my whole weekend doing comp review," said Gabi Horowitz, head of marketing and brand at Expensify, referring to the pay process. "It feels really important. It's a way we can all acknowledge and reward each other for our hard work."

After the voting is completed, the company trims the outlying top and bottom scores to control for issues like people who have grudges or who want to reward their friends. Next, workers are ranked on a scale from 1 to 140, reflecting Expensify's headcount. Workers landing at the top of the scale get the biggest pay hikes, while those at the bottom may see a small or no raise, Barrett said. No one's pay is cut.

"You can't negotiate pay," he said. Barrett added that the company banned negotiating for a number of reasons, including that it rewards people who may excel at negotiation but not necessarily at their jobs: "You don't get what you deserve, you get what you negotiate."

Initial pay for new hires is also set through the ranking, Barrett said. After interviews and reviewing an application, the company decides where a hire sits on the curve, and then offers a starting salary based on that. The company doesn't negotiate starting salaries, either. 

Expensify's board of directors is required to set Barrett's pay, which stood at $933,000 in 2020, but the board relies on the votes from the compensation review process to determine the amount, the company said. 

Horowitz, who has worked at Expensify for more than five years, said she appreciated that approach after fighting "tooth and nail" for higher pay at her previous job. Negotiating "felt very combative," she said. "I remember sitting across my table from my boss, as if we were on opposite sides of the battlefield, and that didn't really feel good."

Democratizing employee reviews

It's easy to see why many workers might like Expensify's approach, said Harvard Business School assistant professor Julian Zlatev, who studies issues such as the choices people make to reinforce their value to a company.

"It sounds like what they are trying to do is democratize the performance evaluation," Zlatev said. But, he pointed out, there could be issues if you don't know the people you are being asked to rank. 

"You will inevitably be ranking people you don't have a lot to do with on a day-to-day basis," he said. "If you are asking about direct comparisons between someone in one area versus another, it feels like comparing apples and oranges."

Some research suggests that evaluating a worker in comparison with another employee can remove some bias, Zlatev noted. For instance, a manager is more likely to judge a worker's actual performance when comparing her against another worker. But without any context, the manager may fall back on gender stereotypes, one study suggests

Expensify's approach is "creative," but it's unlikely to work for every organization, said Shelly Holt, chief people officer of compensation company Payscale. To accurately judge coworkers, you need a fair amount of knowledge about their jobs and goals, she noted. 

"As you get bigger, this is much harder to do," she said. 

Holt added that she would be concerned that even more bias could creep into the process, rather than eliminating it. "It could turn into a popularity contest over who is positioned to be top on that leaderboard," Holt noted. 

And there could be issues with comparing people who perform very different jobs, such as an administrator versus a software engineer, she added. "You might weight a director more than you would weigh a manager, which isn't necessarily fair in a ranking because they don't do the same things and aren't accountable for the same things," she said. 

"Everyone is on everyone's team"

Barrett agrees that his company's approach isn't right for all employers, especially traditional organizations with hierarchical structures. (Expensify has no dedicated managers.) But he said the company is open to tweaking the compensation voting process and has made changes over the years due to feedback from employees. 

Meanwhile, and perhaps not surprisingly, employees sometimes aren't thrilled with their ranking after the companywide vote, Barrett said.

"Say if someone is unhappy, let's talk about it," he said. "But let's understand why it is that the company assessed you at this place. Either you are doing something that no one else knows, or it's also possible that everyone else is right and you are wrong."

Barrett added, "In the vast majority of times, it's you are really not as good as you think you are."

The executive said he believes that the company's approach to pay and management has helped keep employees at the company longer than most tech firms. The average tenure at Expensify is four years, compared with some bigger tech companies who see workers leave after about two years

A science-fiction fan, Barrett said he started developing the company's compensation philosophy by thinking about what a "dream company" would be like. "It's a flat and transparent organization," he said, before adding: "It sounds crazy, but the dream is that everyone is on everyone's team."

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