Who should decide in a company? Who should make the most money? These are difficult questions with many possible answers. In this post I want to explain how my company, Adaptiv, is set up when it comes to power and money.
The first thing to know is that Adaptiv has four owners and four employees. All employees are majority shareholders, i.e. each owns more than 10% of the company. There is nothing original about this, I mention it only as a background. This setup is great, though, because it ensures that all employees regularly think about what’s good for the company – not only what’s good for them personally.
Compare that to an umbrella company, i.e. a setup where everybody is self-employed but pay a share of their profits or a fixed amount to the umbrella each month for services rendered, e.g. sales and invoicing. In that situation, given I have to choose between earning more money for me and helping the umbrella company, it’s not exactly clear how to choose. Of course, people help out with common tasks in that situation as well, but they don’t really have to. It’s exactly that, “helping out”, being nice. In that system it’s quite rational to look to my own situation first, then helping others. It’s important to have a system, which encourages good behaviour. Of course, by making everybody a shareholder in the umbrella company, you have created (almost) the same situation as ours.
Perhaps more original, but more as a remark, is that Adaptiv doesn’t have a CEO. This might seem strange, but since all four of us are on that board, what point is there to have a CEO? A CEO is appointed by the board of directors and for us everybody on the board is employed as well. Many people think a company needs a CEO, but that’s not correct, at least not in Sweden. I have nothing against CEOs per se, but I think a CEO for Adaptiv would start us down a treacherous path of managers and hierarchies. It creates an opening for unnecessary overhead. Side note: We’re open to having a CEO in the future.
More originally perhaps, Adaptiv doesn’t use budgets. We think it’s important to live as you teach. We help our clients with systems thinking and continuous value flow. Company, departmental, or project budgets are often the root causes of evils we meet daily in our projects. We have a practice of giving a copy of Implementing Beyond Budgeting to most managers we work with. It would simply feel strange to have a budget. A budget is a set of financial goals and as I mentioned in the previous post, financial results are an outcome of many parameters. We fail to see the value in a financial goals for us.
Instead, we have a continuous, empirical follow-up of finances. We track each month how we are doing and what we can afford. We might even, occasionally, compare numbers with previous years. Investment decisions are taken continuously, as needed, not artificially every year or quarter. In our company, a consultant has a lot of discretion when it comes to buying work stuff (remember, the company money is partly the partner’s money). For bigger investments, like a new computer or a conference abroad, we are required to suggest it to the partners for discussion. However, so far, the others have never said no.
We teach our clients that transparency is good. How does that show? Adaptiv follows the rules of Open Book Accounting This means we publish our result and balance sheets openly (sometimes we’re a bit behind with the publishing). We also try to comment on items in the reports that might look odd or simply to explain what they contain. We want our customers to know how we spend the money they pay us for our services. If they like, they can have a look at our reports and give us feedback. We want them to see that even a successful consultancy does not imply a life in luxury like the myth says.
Which brings me nicely to to topic of salary and benefits – a sensitive one. We had some debate around this when we started out. I remember advocating a differentiated salary based on business experience and perhaps other things. However, the idea of equal pay and benefits for all partners had most supporters, even our accountant! I have to admit I didn’t know what to think of it. I was the oldest and felt entitled to a higher salary. It seemed, well, a bit socialistic and naïve. What can I say? I was wrong.
I now think equal salary was one of the best decisions we’ve done. I don’t think I have even begun to identify all the positive outcomes from this decision yet. For example, it takes all the individual hassle off the table, e.g. preparing for the salary talk, gathering statistics, getting worked-up etc. At the same time, from the company side, it removes the need for preparing and holding salary discussions and negotiations, which expends a lot of time for managers. It eliminates the risk of bitterness and envy, e.g. someone getting bitter about how much more some other guy is making. Finally, it frees time to do more productive stuff, e.g. helping our clients.
So how does it work in practice? It’s simple. The salary stays the same until it is adjusted after discussion. A partner can bring salary adjustment as a topic any given Friday and then we all discuss and agree on what we should earn. We all have different life situations; two of us have small kids, one has teenagers and one partner has no kids so we need to balance everybody’s needs. That’s when knowing each other deeply and talking in person so often comes in handy. Only by meeting and having an honest dialogue about it can we resolve these tough questions without sour notes. Of course, we also have our financial history to guide us.
On to the juicy stuff, what do we earn? We started out in 2009 with a totally flexible salary based on the financial results of the whole company the last months. After that, we made part of the salary flexible, based on results the last six months. Gradually, we could move the salary range upwards. After a few years we removed the flexible part entirely. At this point, everybody seems fine with their compensation, even though on paper we make considerably less than our employed consultant friends. Today, we earn a fixed salary of SEK 40 000 (USD 6,255) before taxes. But in addition to that, we distribute some of the profits as dividends. Furthermore, we have generous benefits including a seven-week holiday, compensation for planned as well as unplanned parental leave or caring for an ill child, health insurance, SEK 4 000/month to retirement funds, and more. Of course, some money we also keep in the company, as a buffer for harder times.
Could we earn more? Yeah, a bit more, I guess, but that’s not really very interesting at the moment. As a life-style company, we have to look at the whole picture, not just the basic salary. This would include all monetary remuneration, but also our Fridays together, flexible work hours and some other perks I will talk about in upcoming posts.
So that’s how we’ve attacked the tough issues surrounding power and money. I would love to hear stories of how other, small companies have thought. Of course, this setup is made possible by the fact that the company is small and all consultants are working partners, but as long as we are in that fortunate situation, I think it has worked out beautifully. So if having equal pay makes me a socialist then count me in.