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March 6, 2012

Philosophizing about Pay

The central theme for this post is developing a compensation philosophy.  But before I go there, I think some of you might get a kick out of googling the words ‘compensation philosophy’.  On about page three of the search results, you will start to see the actual written philosophies of a lot of different organizations.  Some of them are publicly traded companies and others are government agencies, such as cities or universities.  Would you be willing to post your compensation philosophy for the entire world to see?  And, if you did, would your employees be surprised by what it said?

Fundamentally, the basis of a compensation philosophy is to pay employees a fair and equitable amount for their services without regard to race, sex, age, national origin, color, religion, mental or physical disability, citizenship status, genetic information, or veteran’s status and to attract, retain, and motivate competent employees while providing appropriate control of payroll costs.

Most organizations want to expand on these fundamentals as they develop a philosophy.  Consider these questions as you are creating or reviewing your philosophy:

  • What are your organization’s beliefs about pay?  Are these beliefs shared from the top down?  Are the beliefs shared consistently across divisions/departments/locations?  Have you recently merged with another organization; are your beliefs similar?
  • Do you want to lead the market when it comes to pay practices?  Or do you have a philosophy to match, or in rare cases (and usually unintended), lag, the market?
  • What are you doing to ensure internal equity, external competitiveness, and the ability to respond to changing economic conditions?  Is this reflected in your philosophy?
  • How do you communicate with employees about pay?  How would you like to communicate with employees about pay?
  • How do you define total compensation in your organization?  Does this definition include base pay, incentive pay and benefits?  Is this definition important to your philosophy?
  • Is pay linked to performance in your organization?  Are salary increases earned for demonstrated performance, output and results, not for unused ability or potential performance?

Just as organizations evolve, so do their philosophies.  Take time to write down your philosophy and review your compensation policies.  Call us if you need help.

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