We recently shared a blog outlining the What & Why of Compensation Philosophies. In this blog, we’re taking you through the process and outlining four key steps you need to take in order to develop your own compensation philosophy.
As a reminder, a compensation philosophy explains the “why” behind employee pay and creates a framework of consistency for current and future employees. A well-crafted compensation philosophy can be used to attract, retain and motivate employees.
To get started, here are 4 steps to developing a compensation philosophy:
1. Identify goals
Consider your organizational goals. If your goal is to attract top-tier candidates for specialized positions, you may need to create a custom compensation philosophy that accommodates that goal. Or, if your goal is to save money for your business and reduce overhead costs, you may have to adjust your philosophy to keep it minimal, yet fair, competitive, and compliant. Determine your priorities and use those goals to determine your next steps.
2. Research industry peers
Once you know your goals, research others in your industry. Look at how they structure pay, benefits, and total rewards. Since you often hire from the same group of candidates, your compensation philosophy needs to be competitive to ensure you can hire top talent.
3. Evaluate employee needs
Next, look internally. Determine the rewards, benefits, and pay employees need to feel motivated and valued in their role. Living expenses, transportation costs, and individual employee situations can be relevant considerations as you review. Think of all the offerings you present to your employees to determine a baseline of what they need. Then, determine if your compensation adequately meets that need.
4. Articulate your philosophy
Next, decide how you plan to communicate your philosophy. You might publish specific pay standards for roles using the percentile-based pay philosophy, or you might choose to explain your company values and goals regarding compensation in a meeting. Whichever method you choose, ensure your philosophy is clear, defensible, and fair.
After you take these steps and communicate your philosophy, don’t forget to review and revise periodically. As your company’s goals change or the market standard increases, you may need to adjust.
As you work to define and implement a compensation philosophy, our team is here to help. Contact us today!
