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This summer, we developed our first standardized wage formula at Animal Charity Evaluators (ACE). Here we share the factors that we decided to include, those we left out, and our reasoning, in the hope that our considerations will be useful for other effective altruism (EA) and animal advocacy organizations.
We recognize, however, that each organization is unique and a compensation strategy that works well for ACE may not be ideal for another organization. We do not directly ask about compensation during charity evaluations because we believe that information we receive about job satisfaction (among other criteria) among the staff of the charities we evaluate is more relevant to the charities’ effectiveness than the specific compensation model used.
This wage formula is part of our broader compensation strategy, which also includes the following benefits; however, this post will detail only the wage component:
Up until this point, wages were set by the Executive Director, using a combination of their general knowledge of similar roles’ wages at other EA and animal advocacy organizations, the restrictions of our own organization’s budget, and negotiations with prospective employees. In contrast, we wanted to develop a strategy which could be standardized across the organization, have reduced bias (for example, by eliminating negotiations, since negotiation skills and charisma are not necessarily correlated with one’s level of job responsibilities), be acceptable to mission-aligned and talented candidates, and be competitive with compensation packages offered at other organizations of our size and budget in our space.
Our process consisted of research around compensation best practices and benchmarking, a lengthy discussion among our lead staff, a lengthy discussion among all staff, a discussion with another organization in the effective animal advocacy space for comparison, research into pros and cons of including specific components into the wage strategy, and additional discussions among our Executive Director, Director of Operations, and Managing Director. We considered the following factors:
Below we’ll explain why we decided to include or not include each of these factors.
Cost of Living and/or Market Rates in Various Geographical Regions
As our team spans the globe, the cost of living (COL) can vary quite a bit from employee to employee. There are several advantages and disadvantages to basing wages on the local cost of living. On the plus side, considering the COL would have made our wages more competitive with regions’ market rates, and we might have been better-positioned to hire highly talented individuals who happen to live in high-cost regions. Staff living in expensive cities may have felt that their pay was more in line with that of their local peers and felt more comfortable staying at ACE for longer, knowing that they would be able to continue with their current lifestyle and expenses. In addition, it’s possible that our resources would have gone further if we paid staff living in lower COL regions less.
In the end, we decided not to base wages on COL for several reasons. First, because ACE does not require our team members to live in any particular location, where someone chooses to live while working for our remote organization is ultimately a personal decision which can be thought of in the same way as other expense decisions, such as the size of one’s home, whether to own a car, and how often to travel. As we describe below, we opted to not base wages on employees’ expenses or stated needs. One person may prefer to live in a relatively expensive city, like San Francisco or New York, while another may prefer to live more frugally and spend a larger fraction of their income on other things, such as travel, entertainment, or hobbies. Additionally, paying wages based on COL is difficult to budget for and gets complicated when we consider that staff may relocate; for instance, we don’t think it makes sense to drastically cut an employee’s wages if they moved to a country with a significantly lower cost of living.
Performance/Merit
While performance/merit is one of the most common determinants of wage in most organizations, after researching the pros and cons of including performance/merit in wage decisions and discussing this factor in-depth with staff, we decided that we would not include performance/merit as a factor that determines wages. This is because ACE expects a certain standard of performance from all employees as a basis for their employment, and if we find that that standard is not being met, then we will address that through mentorship, performance improvement plans, termination, or other methods.
Additionally, because many employees in the nonprofit sector are motivated by the mission of their organization—and we believe this is especially true in EA—changes in pay are unlikely to have a great impact on one’s performance. (This is provided that the employees are paid sufficiently to cover their basic expenses, such that they aren’t worried about their finances.)
Employees’ Expenses or Needs
We opted to not factor in employees’ expenses or stated needs. The wages for every position at ACE are high enough to put staff in the top few percent globally and are certainly higher than what is necessary to cover basic needs such as food and shelter. Beyond basic needs, what is a “need” vs. “want” becomes quite subjective. Employees would be put in the position of having to negotiate what is a need for them versus a want, which may unfairly favor people with stronger negotiation abilities (as noted earlier) or dominant characteristics (e.g., male, native English speaker, etc.). As we are trying to minimize our biases, we want to minimize the opportunities for negotiation. We put a lot of thought into the wages for our base levels (described below), ensuring that they are feasible, even for those in more expensive cities, and we believe our wages are high enough to enable employees to afford the things they most want and need.
Type of Work
While some categories of work have historically been paid at a higher rate—such as legal counsel or information technology—at ACE we value each category of work equivalently. As a small organization with a lean staff, our research, communications, philanthropy, and operations are equally important; one area cannot function without the other. Each is a spoke in a wheel that makes the whole wheel turn. Each area requires specialized knowledge, and because ACE has moved to a Scrum-style operating model, each employee is also developing generalized and cross-disciplinary knowledge. For the reasons described here, we decided not to have the type of work influence employees’ pay.
Experience Prior to or Outside of ACE
Whether to include experience outside of ACE as a factor was a difficult decision. Our first draft of the formula did include it by looking at staff’s years of experience in a few different categories: (i) work at an EA-aligned or animal advocacy organization, (ii) work in a similar type of role, and (iii) work in another relevant, professional role.
In the end, we decided not to include experience outside of ACE for a few reasons:
Similarly, we do want to value people with extensive experience when it contributes to their success in the role, but people with a great deal of experience would likely be hired or promoted into senior levels, and levels are factored into the wage formula.
Not including prior experience also helps us avoid ageism in either direction—we didn’t want to fail to recognize (and fairly compensate) a person earlier in their career if they showed the skills to do their work well, and we didn’t want to fail to fairly compensate a person at a mid- or late-stage of their career if they were bringing extra insight and abilities to their position.
Our wage formula ended up being relatively simple, including just the following two factors.
Position Level (Seniority)
The position level, or seniority, is the main component of our formula, making up 90%–100% of each person’s wages and is a factor that was agreed on by consensus. We believe that staff taking on more responsibility, using their specialized expertise and/or taking on a leadership role, should be paid more than entry-level staff who currently have lower levels of responsibility and who may need more mentorship in their roles.
We categorized each role into a level and set the base wages for the different levels based on our budget, benchmarking across organizations of similar sizes and budgets, and the extent of responsibility that comes with each level. Our current levels are as follows:
While the base wages we can offer at present are livable, even in more expensive cities, they are still a bit lower than those of some organizations with similar roles in our field. We hope that we will be able to increase funding for our organization and raise these rates in the coming years so that we can continue to attract and retain highly skilled team members.
Tenure at ACE
Our formula includes an addition to the level-based wages described above, which is determined by the length of time the employee has been at ACE. We are including tenure at ACE because we greatly value the organizational knowledge that comes with being at our organization longer, and to increase retention. This component equates to a flat amount per year, given as a raise on each anniversary of the employee’s start date, and makes up 0%–10% of staff’s wages.
For part-time employees, we calculate the “years at ACE” a bit differently than the straight, prorated, full-time equivalent number of years: We use the weighted average of three-quarters of their full-time equivalent years and one-quarter of their full calendar years. For example, for someone who has worked half-time for three years, we would use (¾)(1.5 years) + (¼)(3 years) = 1.9 years. The reason for this adjustment is that we believe someone who has been with ACE for a longer period of time will have picked up more organizational knowledge and history than someone newer who has worked the same number of hours. We found an analogy to movie-watching helpful: If ACE’s history is like a movie, then someone who has worked at ACE full-time for the last six months only watched the last, say, 20 minutes of the movie. Someone who has worked the same number of hours but was part-time over a couple of years would be getting couple-minute snapshots covering more of the whole movie, so they’d have a better understanding of the plot and themes.
Capped wages: We set an organization-wide cap on wages to minimize the disparity between the highest and lowest paid people in the organization.
Cost of living adjustment: We include an annual cost of living adjustment based on the U.S. federal inflation rate, which we expect to be between 1% and 3% per year. This adjustment is made on the full wages (both the level and ACE tenure portions).
Adjustment for required pension contributions: The United Kingdom requires employers to contribute to employees’ pension accounts, so in order to ensure our compensation is equitable across countries, we decreased our U.K. employees’ wages by the extra amount we pay them in pension contributions.
We decided to share the exact wage formula with our staff, which provides quite a bit of transparency. In order to decide whether to share employees’ exact wages internally and/or externally, we conducted a survey. While the majority of employees would have been okay with full internal transparency, a few staff wanted wages kept confidential, and we are respecting their privacy by not adopting a policy of full internal wage transparency.
The majority of staff preferred that we also keep wages confidential from anyone outside of ACE. One risk with making wages externally transparent is that our staff’s future employers may use the knowledge of their pay rate to offer a lower salary than they would have otherwise. This concern is most relevant with for-profit employers, as we expect their default pay rates to be higher than what we’re able to offer as a small nonprofit organization.
Though it is certainly not requested or expected, some of our staff wish to support ACE financially and may do so by accepting a lower wage than what we offer based on the formula. Donating in this way instead of by a regular donation reduces ACE’s payroll taxes and may also reduce employees’ tax payments. We greatly appreciate donations from our staff, and employees donating in this or any other way are eligible for recognition on our Top Donors page.
In addition to receiving input from staff throughout the process of developing our wage formula, we expect to receive feedback in our upcoming internal, anonymous culture survey and surveys thereafter and may make adjustments to our compensation strategy accordingly.
We are also keen to hear from you! What compensation strategy works well for your organization? On what factors do you agree or disagree?
This is a cool post, thank you for laying out your thought process. I especially like the section on (not using) cost of living adjustments.
One thing I would bring up is it seems you have focused a lot on the demand side, and not so much the supply side, of the equation. In the 'type of work' section you discuss equally valuing all these different skillsets, but they might not all be equally scarce. There are some roles when you might want to hire non-EAs (e.g. accounting, IT, HR, legal), in which case you might need to pay more for rarer skills - and conversely if you wanted to hire a cleaner, or someone to do data entry, it might seem wasteful to pay them as much as your researchers and programmers. It would be a shame to have experienced staff wasting their time on low-skill work just because you couldn't justify spending an above-market wage on hiring someone.
Hi Larks, Thanks for your comment. While our current formula does not take into consideration the type or field of work, it does differentiate between different levels of skill that are needed. So, for example, if we did want to hire someone to do data entry, we might classify that a level 1 position (or maybe we'd need to re-number all of our levels so that that position could be below research associates).
Regarding scarcity, it's true that our current formula does not take that into consideration. If we find in the future that we have difficulty hiring for a certain position, we may need to seek additional funding in order to raise the base wages for every position or else make adjustments to the structure of our formula.