#123 1980 · Semco S/A · Industrial manufacturinglegibility
A Brazilian factory owner let employees set their own salaries, and paid less on suspiciously honest numbers than a normal review cycle would have
the problem
Pay reviews turn into a negotiation the employee cannot win, run by a manager who can't see the job from the inside
background
A conventional pay review is an asymmetric negotiation: the employee has partial information about market rates and no information about what colleagues earn, the manager holds both, and the manager's incentive is to keep the number low. Companies attack the asymmetry with pay bands, HR benchmarking software and formal review cycles — all of which still leave the manager as the sole gatekeeper deciding the final number, and still leave employees suspecting they're being lowballed.
Ricardo Semler took control of Semco, his father's São Paulo industrial-equipment manufacturer, in 1980 at 21, inheriting a company of 90 employees and $4 million in revenue run on a conventional command hierarchy — and fired 60% of the top managers on his first day as CEO. Rather than replace their judgment with better benchmarking tools, Semler set out to remove the gatekeeper from the salary decision entirely, in an industry and a country where that had no precedent.
the move
Employees set their own salaries. They fill out a self-evaluation, then weigh their number against four things everyone in the room can also see: published external market rates, internal pay for comparable roles, what peers doing similar work actually earn, and their own stated financial needs — with the company's pay surveys and comparable salary data made openly available rather than held by management. About a quarter of Semco's workforce set pay this way at any time; because the number is defended in front of colleagues who have the same data and would notice an inflated claim, it functions as public accountability rather than an unchecked request.
the payoff
Semco grew from $4 million in revenue and 90 employees in 1982 to $35 million by 1994 and $212 million with roughly 3,000 employees by 2003, sustaining one of the highest growth rates of any company in Brazil through periods when large multinationals entered its markets and the country went through repeated recessions — including 1990, when Semco itself cut management salaries 40% and gave employees approval rights over every item of company spending rather than imposing layoffs unilaterally.
what came after
Semler documented the practice in his 1993 book 'Maverick: The Success Story Behind the World's Most Unusual Workplace', which became a management-school staple and made Semco one of the most cited examples of workplace democracy; the self-set-pay model is still taught today, over three decades on, as a case study in transparency substituting for hierarchy in compensation decisions.
filed under
references
- [1]Ricardo SemlerWikipedia, 2024en.wikipedia.org
- [2]Semco: A Participative Approach to PayRebel Playbook, 2020rebelplaybook.com