The Different Compensation Models for Software Engineers on Call: What Works Best?

In today’s digital-first world, uptime and reliability are paramount. Software engineers, who are often tasked with the critical responsibility of being on call, play a crucial role in maintaining these standards. But the question of how to compensate them for their on-call duties is a complex and nuanced topic that varies across companies and industries. In this blog, we’ll explore the different compensation models used for software engineers being on call, examining the pros and cons of each, and offering insights into what might work best for your team.

1. Flat Rate Compensation

Overview: Flat rate compensation involves paying engineers a predetermined amount for each on-call shift, regardless of the number of incidents or the severity of issues encountered.

How It Works: An engineer might receive a fixed amount per shift (e.g., $100 per night or $500 per week) for being available to respond to incidents.

Pros:

• Simplicity: This model is straightforward and easy to administer. Engineers know exactly what they will be paid for their on-call time.
• Predictability: Both the company and the engineer have a predictable cost and income, respectively.

Cons:

• Lack of Incentive: Engineers might feel less motivated to resolve issues quickly or with urgency since they are paid the same regardless of effort.
• Fairness Concerns: If one shift is significantly more demanding than another, it can feel unfair for the engineer who had to deal with more severe or numerous issues.

Best For: Smaller teams or companies where on-call duties are relatively light and predictable.

2. Hourly Compensation

Overview: Hourly compensation pays engineers for each hour they spend actively responding to incidents while on call.

How It Works: An engineer would log the time spent resolving issues, and they would be compensated based on an hourly rate. For example, an engineer might earn $50 per hour spent on resolving incidents.

Pros:

• Fair Compensation: Engineers are compensated based on the actual time they spend working, which can feel more equitable.
• Motivation: Engineers may be more motivated to log their time accurately and address issues promptly.

Cons:

• Administrative Overhead: Tracking and logging hours can be cumbersome for both engineers and HR.
• Disincentive for Efficiency: This model might unintentionally incentivize engineers to take longer to resolve issues, as they are paid based on time spent.

Best For: Teams where the volume and complexity of on-call incidents vary widely, making it fairer to compensate based on actual work done.

3. Per-Incident Compensation

Overview: This model compensates engineers for each incident they handle while on call.

How It Works: An engineer might be paid a fixed amount (e.g., $50) for every incident they respond to, regardless of how long it takes to resolve.

Pros:

• Incentivizes Efficiency: Engineers are motivated to resolve incidents quickly and effectively.
• Fairness: Engineers are compensated for each task, which can feel more balanced if one shift has significantly more incidents than another.

Cons:

• Quality Concerns: This model might encourage a “quick fix” mentality where engineers prioritize speed over quality.
• Variable Income: Engineers may face fluctuating income depending on the number of incidents.

Best For: Environments where incidents are frequent but generally similar in scope and complexity, allowing for consistent per-incident rates.

4. Time Off in Lieu (TOIL)

Overview: Instead of financial compensation, engineers are offered additional time off in exchange for their on-call duties.

How It Works: For example, an engineer who is on call for a weekend might receive an extra day off during the week.

Pros:

• Work-Life Balance: Offers a way to balance the intense demands of being on call with additional rest time.
• Retention: Engineers might appreciate the extra time off, improving job satisfaction and retention.

Cons:

• No Immediate Financial Reward: Engineers who prefer immediate financial compensation might not value TOIL as highly.
• Scheduling Challenges: Coordinating additional time off can be difficult, especially in small teams.

Best For: Companies where work-life balance is highly valued, and the workload allows for flexible scheduling.

5. On-Call Stipends

Overview: On-call stipends provide a regular, additional payment to engineers for simply being part of the on-call rotation, regardless of whether they are called upon.

How It Works: Engineers might receive a monthly or quarterly stipend (e.g., $500 per month) as compensation for their availability.

Pros:

• Consistency: Provides engineers with consistent additional income for their on-call duties.
• Retention: Regular stipends can be a strong incentive to remain with the company.

Cons:

• May Feel Unfair: Engineers might feel undercompensated if they handle more incidents than their peers but receive the same stipend.
• Lack of Incentive: There’s little motivation to respond quickly or efficiently since the stipend is fixed.

Best For: Companies with stable, predictable on-call demands where the primary burden is the availability rather than the number of incidents.

6. How Much Do Companies Pay for On-Call Duties?

Compensation for on-call duties varies widely based on the company’s size, industry, and location, as well as the specific demands of the role. Here are some general figures based on industry standards:

• Flat Rate Compensation: Companies typically pay between $100 to $200 per night for on-call shifts, with some paying as much as $500 for a weekend on-call shift. In some high-demand industries, the rates can be even higher.

• Hourly Compensation: Engineers might earn anywhere from $30 to $100 per hour for time spent actively responding to incidents. The rate can vary depending on the engineer's seniority and the critical nature of the incidents.

• Per-Incident Compensation: Payments per incident can range from $25 to $100, depending on the complexity and urgency of the issue. Companies in sectors like finance or healthcare, where uptime is critical, might pay more per incident.

• On-Call Stipends: Monthly stipends for being on call can range from $300 to $1000. This amount is usually independent of the number of incidents handled but is intended to compensate for the disruption to the engineer’s personal life.

• Time Off in Lieu (TOIL): While TOIL doesn't involve direct financial compensation, the equivalent value can be significant. For example, an extra day off might be valued at the engineer's daily rate, which could range from $300 to $800 or more.

It’s important to note that these figures are averages and can vary greatly depending on the engineer’s experience, the specific demands of the on-call role, and the company's policies.

7. How Pager Hero Can Help Manage On-Call Compensation

Managing on-call schedules, compensations, and ensuring fairness across the team can be challenging, especially as your organization grows. This is where Pager Hero comes in.

Pager Hero is a tool designed to simplify the management of on-call schedules, incident response, and alert notifications for engineering teams. With Pager Hero, you can:

• Automate On-Call Scheduling: Easily create and manage on-call rotations and schedules, ensuring that every team member gets a fair share of on-call duties.
• Track Incident Responses: Log and track incidents in real-time, making it easier to implement compensation models like hourly or per-incident pay.
• Report and Analyze: Generate reports on on-call activities, helping you analyze workload distribution and compensation fairness.

Pager Hero not only helps in managing the operational aspects of being on call but also ensures that your engineers feel valued and fairly compensated for their critical role in maintaining uptime and reliability.

Choosing the Right Model

The ideal compensation model for your team depends on various factors, including the frequency and severity of on-call incidents, your company’s culture, and the preferences of your engineers. It’s also important to consider combining models to tailor compensation more closely to your team’s needs. For example, a flat rate combined with hourly compensation for incidents could offer a good balance of predictability and fairness.

Conclusion

Compensating software engineers for on-call duties is a critical aspect of maintaining morale and ensuring that your team feels valued. By understanding the different models available and their respective pros and cons, you can design a compensation structure that aligns with your company’s needs and keeps your engineers motivated and satisfied.

In the end, the best model is one that acknowledges the unique demands of on-call work while providing fair and meaningful compensation for the engineers who keep your systems running smoothly, day and night.