Compensation Philosophy

Over 10 years, we’ve crafted a highly transparent, systematic approach to compensation where fairness and equity happen “by design.” We call it our Compensation Philosophy. We treat it like a product - it has principles and opinions about the world and our obligations, it’s clear about what we are trying to balance, and it’s been crafted and edited over many years as we have grown. Every little feature and change is considered carefully as part of a bigger, harmonious design.

Our 70-slide deck explaining the philosophy is embedded below. You can also view the Google Slides or download the PDF below.

The deck discusses much of the thinking and principles behind the philosophy and then walks through the system we use to bring it to life, piece by piece. You can start having never thought about it, and end with a complete picture of why and how it works. I’d suggest not skimming it, but making a coffee or tea and setting aside a few hours to walk though it and think critically.

At the core of the system, there is an internal website that all Octonauts can use to view our salary tables. To make it concrete, here’s what the actual page looks like for software engineering roles in Australia:

There are a lot of things to note here that may not be obvious:

1. Anybody in the company can view these salary tables
2. You can view the table for your career path, or any other career path (e.g., software engineers can see the ladder for sales people, and vice versa)
3. The rows of the table are the levels - junior through to the most senior
4. There are separate individual contributor and manager tracks - you aren’t forced to become a manager to earn more There are only three possible salaries for each level - maturing, performing, and exceeding, and we outline these in our handbook.
5. We pay very competitively. We aim for Maturing to be at the 50th percentile of the benchmarks and Performing to be at the 75-85th percentile. We usually hire people at the Performing level. What this means is that if you received 10 job offers, ours might not be the top offer (large banks for example might pay more, but won’t be as interesting to work at), but it will be the same or higher than about 8 of them.
6. Importantly, those are specific numbers, not ranges. A senior software engineer in Australia who is Performing is paid exactly $165K, not a cent more or less.
7. We do vary compensation by currency, but not by city or state. An engineer in Outback Australia is paid the same as an engineer in Sydney, but an engineer in New Zealand will be paid differently, though we try to minimize these differences.
8. Some roles also receive 5% additional compensation for being part of our on-call program. So the senior engineer above would actually be on $165K + 5% = $173,250.
9. We work hard to benchmark those values to the best available benchmarks we can find, and use multiple sources for benchmarks. Our sources include Mercer Comptryx, Pave, and a variety of surveys that recruiting firms publish depending on the role. We also share the raw benchmark sources with our employees so they can hold us accountable.
10. Hyperlinks take you to the detailed expectations for each role (at least for roles where we tend to have lots of people, and have taken the time to standardize the expectations). For R&D roles, you can read these descriptions in our public GitHub repository.

This system puts a lot of information into the hands of employees. An Octonaut can look at this table and see exactly what they are supposed to get paid, and what they will be paid when they are promoted. They can look at the same benchmark data we see and know how competitive it is. They can also feel confident that someone doing the same work as them with the same skill will be paid the same.

This creates a self-reinforcing system. Rather than saying, “Just trust us,” we give them the information they need to judge for themselves. And if we have made a mistake—which as humans, we sometimes do—it empowers them to ensure it’s fixed.

Although this system is extremely transparent, there is still a degree of privacy. All employees know the level of every other employee (it’s in their job title). But the maturity (maturing, performing, exceeding) is only known by themselves and their management chain; it’s not shared company-wide. So, from someone’s job title and location, you can probably guess what they might be paid, but it will be one of three numbers.

Benchmarking salaries

There are plenty of reasons that we want you to feel “trapped” at Octopus: the culture, the freedom & trust in the role, the empowerment and satisfaction from your work, and so on. But the one reason we don’t want you to feel trapped is for the money. If we paid far above the market, we’d create a situation where it would be too difficult to leave, even if you hated working here. At the same time, we want to pay towards the top end of the market, because we are always looking for top talent.

We get salary benchmarking data from a variety of sources, but the most complete and relevant for us is Mercer Comptryx, and make adjustments as we make offers in the market and they are accepted or rejected. We don’t benchmark salaries to local cities or states, only countries.

Internally, we define a compensation mix depending on the job family, job level, maturity rating, and country.

For example, two people, who are both Level 3 software engineers (Senior Software Engineer), both of whom are at “Performing” on the maturity ratings, will get paid the same. If they are both in the same country, they will be paid exactly the same. If they are in different countries, their salaries should be broadly similar with minor FX differences.

Salary reviews

Many people feel uncomfortable talking about their salaries or asking for a raise, so at Octopus we set up a predictable system to support you.

Your salary may change if:

• Your level or rating changes as a result of a performance review
• You change roles or your responsibilities change significantly
• We re-align your salary to keep up with market benchmarks. This process is usually done in November.

It’s easy to adjust your salary up when performance is good, but difficult to adjust it down, and historically we’ve shied away from doing that even when it’s obvious that we should. Plus, it detracts from the important thing: finding ways to develop and improve. Before we increase your salary, we’re looking for 5-6 months of consistent, sustained performance; not a few good weeks leading up to the performance review.

If you’re unsure where you stand or you’re concerned about your salary, you can always talk to your manager.

In previous years we did salary reviews once per year and simply applied a standard raise across the board. We no longer use the “standard raise” concept, as we’ve gotten a lot better at doing individual reviews and benchmarking, and we’re confident your salary will be an accurate reflection of your long-term contribution and growth.

Progression & Compensation

As your skills increase and your contribution to Octopus grows, your compensation should too. However, it’s worth understanding that within a role, the progression from Junior through to Senior, Lead, and Principal isn’t a binary thing - it’s a gradient because it requires demonstrating many different skills, some that you may have figured out, and some that you haven’t yet.

This diagram illustrates the idea that we try to make it so that your compensation at “exceeding” will be the same as your compensation at “needs improvement” of the next most senior role:

This means that pushing for a title/seniority change isn’t that important, and seeing that somebody’s title within the role changed doesn’t mean that their compensation did.

As an example, suppose that you are a Support Engineer (level 2), and you want to find ways to grow your contribution to the company, and your salary over time as well.

If you look at the list of things we expect from a Senior Support Engineer (level 3), there might be 10 bullet points that explain what we expect in that role. Perhaps you do 3 of them consistently, and there’s 4 you’ve demonstrated in the past but not consistently, and there’s 3 more you’re working on. That’s what we mean by there being a gradient. At what point do you become a Senior Support Engineer?

You could equally fall into the “Exceeding” category of Support Engineer because you’re meeting everything expected of your role, plus a bit more. Or, you could fall into the “Needs Improvement” category of the Senior Support Engineer role. Whichever title you use, your compensation probably won’t change immediately.

Page updated on Sunday, December 3, 2023