Craft a Compensation Philosophy

Lay the groundwork for compensation that is competitive, cost effective, and brand aligned.

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Your Challenge

  • Employee compensation often comprises in excess of 70% of an organization’s ongoing operating expenditure, yet few organizations have plans in place to properly direct and control this expenditure.
  • Without a compensation philosophy to steer their decisions, organizational leaders run the risk of inconsistency, real or perceived inequity, which could lead to issues with attraction, engagement and retention – not to mention litigation.

Our Advice

Critical Insight

  • The first step in compensation planning is the development of a compensation philosophy that clearly articulates the organization’s high-level approach to pay for each of its employee segments, including its target competitive position.
  • A compensation philosophy should include: compensation objectives, current structure, basis of job value, focus of variable compensation, approach to raises and promotions, competitive intent for each employee segment, and approach to administration.
  • A compensation philosophy needs to be specific in order to effectively direct compensation practices; it needs to specify the target approach (lag, match, lead) and the target market position it desires for each employee segment.

Impact and Result

  • Develop a clearly articulated compensation philosophy that lays the groundwork for compensation that is competitive, cost-effective, and brand-aligned.

Contributors

McLean & Company conducted four interviews with thought leaders and HR practitioners between February and March 2012.

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Get to Action

  1. Make the case for crafting a compensation philosophy

    Understand business factors and HR trends that are driving the need for compensation planning.

  2. Explore internal and external factors influencing compensation

    Establish a compensation philosophy based on organizational and industry information.

  3. Draft a compensation philosophy

    Effectively direct compensation practices to ensure equity and competitive positioning.

Guided Implementation icon Guided Implementation

This guided implementation is a two call advisory process.

  • Call #1: Explore internal and external factors influencing compensation

  • Call #2: Draft a compensation philosophy

Onsite Workshop

Module 1: Make the case for crafting a compensation philosophy

The Purpose

 Understand business factors and HR trends that are driving the need for compensation planning.

Key Benefits Achieved

 Gain buy-in and context for participation in the workshop.

Activities: Outputs:
1.1 Identify and discuss your compensation challenges
  • Determine common pain points being felt across stakeholder groups

Module 2: Explore internal and external factors influencing compensation

The Purpose

 Discuss internal and external factors to shape your approach to compensation.

Key Benefits Achieved

 Establish a compensation philosophy based on organizational and industry information.

Activities: Outputs:
2.1 Discuss internal and external factors influencing your compensation philosophy
  • Uncover important information that will shape your approach to compensation
2.2 Determine your general market positioning
  • Consciously decide to lead, match, or lag the market
2.3 Identify your competitors for talent
  • Consider your competition when setting market positions and selecting data

Module 3: Draft a compensation philosophy

The Purpose

Develop a specific compensation philosophy to be applied to all compensation practices in your organization.

Key Benefits Achieved

Effectively direct compensation practices to ensure equity and competitive positioning.

Activities: Outputs:
3.1 Uncover fundamental compensation principles
  • Determine your areas of focus
3.2 Develop a compensation philosophy model to clearly illustrate areas of focus
  • Use a graphical illustration to communicate with stakeholders
3.3 Use your compensation principles to select market positioning strategies and targets for salaries and TCC
  • Select your positioning and targets for each employee segment
3.4 Draft your compensation philosophy
  • Documented compensation philosophy

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Onsite Workshops offer an easy way to accelerate your project. If you are unable to do the project yourself, and a Guided Implementation isn’t enough, we offer low-cost onsite delivery of our Project Workshops. We take you through every phase of your project and ensure that you have a road map in place to complete your project successfully.

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Updated

Search Code: 73881
Published: December 4, 2013
Last Revised: May 11, 2015

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