What is an Employment Compensation Philosophy?

What is an Employment Compensation Philosophy?

An employment compensation philosophy, Keating advised, “is a set of principles, and those principles are based on the values that drive compensation decision-making.” A well-crafted employment compensation philosophy helps tell the story of who you are as an organization and what you value as an organization. It will:

  • Define the organization’s commitment to valuing employees
  • Define desired market or pay position
  • Be used as key tool to attract, retain and motivate staff
  • Combine the use of base salary, variable or incentive pay (where appropriate), and non-cash rewards (i.e. benefits)

“Ideally, a compensation philosophy,” according to Keating, “should be consistent across all the different areas in an organization. Across departments, across different roles. While it may not be the same labor market or there may need to be differences in how a compensation philosophy is applied for different departments, having the same values transcend the different departments is the really important part.”

Typical Employment Compensation Philosophy Objectives

Typical compensation philosophy objectives include:

  • To realize internal equity by looking at the relative worth of comparable of positions within the organization using job rankings, job classifications, or a point system
  • To achieve external equity (to the extent possible) by looking at fair or competitive pay relative to the external market
  • To develop compensation practices that are fair, objective, transparent and legally defensible
  • To develop a compensation process and system that can be easily maintained and updated

10 Questions to Answer for a Sound Employment Compensation Philosophy

  1. What are the goals of the compensation plan?
  2. How do you define compensation?
  3. With whom do you compete for talent?
  4. What is your targeted competitive position in the market?
  5. How will you balance internal equity versus external competitiveness?
  6. What role will performance play in your program?
  7. What will be the mix of compensation?
  8. What role will line managers play in compensation administration?
  9. What will you communicate to your employees?
  10. To what extent should senior leadership commit to the compensation philosophy?


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Zachary is an experienced global consultant and business advisor and an expert in compensation, benefits and global rewards. He has worked in large, medium and small companies, both for profit and not-for profit, as an executive and internal consultant or as an external consultant helping address the full range of human resources issues. In addition to North America, Zachary has lived and worked in Latin America and the Middle East and has worked on six of the seven continents. Diverse organizations he’s done work for include Bose Corp., Covidien (now Medtronic), Crane Co., MasterCard, The Metropolitan Museum of Art and State Street Bank. Zachary is a leader with a track record delivering strategic solutions and leading change. With exposure to multiple industries, he has a reputation for initiating continuous improvement in a collaborative and consultative manner. He understands the dynamics of organizations and the challenges of creating change. Zachary has the experience, knowledge and ability to understand local and global business and HR issues and risks, and to identify, recommend, develop and apply creative and cost effective total rewards solutions. Zachary has over 25 years of experience complimented by a Masters in ILR from Cornell, a JD, from the University of Connecticut and an MBA from Rensselaer Polytechnic Institute. He is a Certified Employee Benefits Specialist (CEBS). Zachary has served on a variety on non-profit and community boards and as a university adjunct instructor.

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