Self-Set Compensation

Definition

Without a manager to set salaries, several self-managing organizations let individuals set their own pay, constrained not by a boss's approval but by structured peer input — colleague rankings, an advice process, or an elected review committee. The underlying bet is that people, given real information and real peer accountability, will price their own contribution more accurately and more legitimately than a distant authority would.

In the Book

W. L. Gore (Gore-Tex) and HolacracyOne use annual peer-ranking surveys — at HolacracyOne, colleagues simply answer "this person contributes (much) more or less than me" and "this person has a good basis to evaluate me," and a simple algorithm sorts people into salary buckets. AES, under CEO Dennis Bakke, let people set their own salary directly through the advice process, seeking recommendations from surrounding peers. Morning Star's version is the most elaborate documented: each colleague writes an annual letter proposing their own raise, backed by peer feedback from their CLOU (Colleague Letter of Understanding) partners and performance data, which is reviewed — not approved, only advised on — by an elected compensation committee at each of the company's four locations. The book reports that in a typical year roughly a quarter of Morning Star's people request a raise above cost-of-living, and only a handful across the whole company are told they aimed too high — evidence, Laloux argues, that people are "remarkably skillful" at assessing fair compensation for themselves when given real peer information.

Why It Matters

Self-set compensation tests a specific assumption behind most pay systems — that people cannot be trusted to price their own value without a superior imposing external judgment. The book's cases suggest that when self-assessment is paired with genuine peer visibility (not private, unaccountable self-declaration), the accuracy failure people fear rarely materializes, because social calibration among peers does the work a manager's judgment used to do. This generalizes to any incentive-design question about whether oversight should come from a hierarchical authority or from horizontal, informed peer accountability.