What is a Compensation Philosophy? 

Does your company have a compensation philosophy? What does that even mean?! A compensation philosophy is a description of the objectives, guidelines and principles on which compensation policies, programs, systems and practices are based. It answers why a compensation program is designed or functions as it does or will in the future. It forms the foundation for making decisions and communicating them internally and externally.

It’s important to have a compensation philosophy to provide clarity and guidance to management in making decisions about: the ongoing effectiveness of programs and practices, new or unexpected situations within and outside of the organization, issues with talent acquisition and management, changes to the economic and market conditions and regulatory environment, and unusual employee situations and issues.

When consistently translated into actions through policies, programs, systems and practices and communicated to employees, it enhances employee pay satisfaction. If the philosophy statement doesn’t impact how pay programs are designed and managed, it is just rhetoric. Therefore, at its best, the compensation philosophy influences desired behaviors (and performance) of employees.

Read more about what a compensation philosophy includes…

What are some examples?

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To learn more or discuss this further, contact the Wilson Group at info@wilsongroup.com.