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Craft a Compensation Philosophy

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

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Contributors

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

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.

Research & Tools

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 Implementations

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

Discuss This Workshop

Book Your Workshop

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 roadmap in place to complete your project successfully.

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

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