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compensation philosophy has a few basic objectives: to attract, retain and motivate the best employees. But where you go
from there determines whether the philosophy is a paper transaction
that sits on a shelf or a vital tool that allows you to equitably
and consistently implement your compensation programs.
A well-crafted compensation philosophy "helps tell the story of who
you are and what you value as an organization.
If the organizations goal is to become the dominant company in your
industry within five years, your philosophy statement may be to pay highly talented people a little more than market
value today so that you can reap the benefit of their contributions
three or four years from now.
If your goal is to improve productivity, your philosophy statement
may include how you tie compensation to performance and
productivity.
If the goals are to always looks for the “best and the brightest”
employees, your pay ranges may be positioned to lead the market.
If the organization decides to establish compensation costs as a
percentage of total income then your philosophy statement might be:
Direct compensation costs shall not exceed a percentage of annual revenues.
If the organizations goals are to hire individuals who have
“potential” and are somewhat junior in their field, your philosophy
statement might be to pay lower than peer companies and realize that
these individuals may go to a competitor for their next level.
Sample Compensation Philosophy:
The organization
should believe that rewards and recognition programs are essential for
communicating performance expectations, for improving productivity
and for recognizing contributions for the company’s success.
The objectives of compensation programs are:
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To achieve a
performance-driven work culture that generates company growth.
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To provide a
clear focus and measurement on key objectives with a meaningful
link to rewards.
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To provide
competitive compensation opportunities that attract and retain
top performers, focusing on external competitiveness as the
primary driver of pay opportunities.
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