At the beginning of my career, I worked as a specialist in executive compensation. With this experience came the understanding that executive compensation was of the utmost importance for shareholders, as they always demanded to understand what executives were paid, why, and how that pay related to the increase of their shareholder value. With that demand, all publicly traded companies have a compensation philosophy embedded in their annual filings, with particular attention on executive pay.
These days non-executive roles are most often the focus of articles and pay topics around the globe, and with the EU and certain US states creating legislation related to pay transparency, it is clear the majority of the employees at companies (who are non-executives) want as much transparency as shareholders receive.
But as a compensation professional, there are few processes less appealing than needing to incorporate a new law into an unguided and undefined pay program. The law becomes the driving factor, and usually, the practices around pay within the organization have been left unchecked for so long that the development of new policies and procedures becomes law-driven, not values or strategy driven.
Don’t get me wrong. I am happy to see legislators start putting something in place to regulate secrecy around pay practices. However, this usually leads to the HR team's efforts being highly reactive, undermining the development of a strong compensation strategy.
Typically, start-ups begin paying employees before having a specific position on how pay could develop during the business cycle and how pay is aligned with company values and business strategy. This is a mistake but can be remedied by starting at the beginning with the compensation philosophy.
What is a compensation philosophy? A compensation philosophy guides the programs, procedures, practices, processes, and behaviors related to your workforce's attraction, development, and retention. It is the first building block to developing the right compensation strategy, which should align with how the compensation strategy supports your business’ success.
There are many ways to develop a philosophy statement. Here are a few standard components to consider:
Understanding and incorporating the organization’s values and business strategy
Defining compensation objectives with a focus on the long-term
Describing the compensation elements used to pay and reward employees
As with all compensation topics, at its core, the compensation philosophy should be based on dignity in the workplace (respect, value, and ethical treatment).
Compensation work will inevitably increase as a business develops, and you will need to ensure employee concerns, company values and strategy, and shareholder interests are kept at the forefront of changing economic, business, and legislative landscapes. Your compensation philosophy will become an anchoring guide for these changes.
Please contact me if you would like a discovery call to determine how I can guide or support you in building your company’s unique compensation philosophy.