008: How to align leadership on your company's Compensation Principles
008: How to align leadership on your company's Compensation Principles
Hint: Use my Compensation Policy Worksheet
What is a Compensation Policy?
A Compensation Policy is an explicit overview of a company’s views and decisions about total compensation. This vital tool aids in demystifying the salary structures within your organization, making it clearer why pay scales are the way they are.
You may have seen statements like “we pay 60th percentile” or “we don’t adjust pay based on location” in job descriptions. These are (ideally) reflections of a well-thought-out Compensation Policy.
As an organization grows and adapts, your Compensation Policy should evolve too. It’s not static; it’s a dynamic framework that will grow with your company.
The Case for a Compensation Policy
The value of transparency in compensation cannot be overstated.
Recent data from a 2023 SHRM survey shows that 73% of US workers are more inclined to trust companies that are upfront about salary information in their job postings.
In my experience, understanding the rationale behind the numbers often holds more weight than the figures themselves. Think of the potential of coupling a Compensation Policy with the actual figures in your job descriptions!
Beyond aligning with job seeker expectations and employee demands, a transparent Compensation Policy is crucial for maintaining pay equity.
An explicit and define Compensation Policy helps achieve:
Equity: Ensures fair pay across different roles, levels, and geographies.
Alignment with Business Goals: Supports and drives the company’s core objectives.
Market Competitiveness: Keeps you competitive in your industry.
Clarity: Simplifies understanding for everyone in the team.
Having your Compensation Policy principles explicitly outlined and agreed upon keeps your compensation and career framework decisions consistent and systematic while also giving the team a shared understanding of how compensation decisions are made.
As a builder of these frameworks, it is 1000% worth the upfront time to gather the leadership team at your company and go through an exercise to agree on your Compensation Principles.
👇 Read on below to learn more about:
My Compensation Policy Pillars Worksheet: The worksheet and prompts I use to define Compensation Principles.
My Compensation Policy Pillars Worksheet in action: I’ll complete the worksheet for a real company, Outseta.
How do I write a Compensation Policy?
To have a meaningful Compensation Policy, you have to write your own. There are pieces of pay transparency like salary data, leveling frameworks, and competency definitions where you don’t need to reinvent the wheel.
However, a Compensation Policy is specific to how your company wants to balance revenue growth with team member growth and the unique talent required to achieve your specific core business objectives. The goal is to create an approach that works for your business and specific employee value proposition.
Here are the key buckets I guide teams through to uncover their Compensation Policy:
Market Position: What type of talent do you need to attract based on your business strategy?
Location: How should location factor into your Market Position?
Performance: How does your team define growth?
Transparency: Where will your org fall on the pay transparency scale?
Total Compensation Matrix: How will you align performance and compensation to appeal to your target talent and support business objectives?
Applied: Let’s identify Compensation Pillars for Outseta
I personally learn by doing so let’s start a Compensation Policy together. ✨
Outseta is a company I admire for its transparency and unique organization-building approach. Their transparency also makes it helpful to scoop up their opinions and approaches to compensation and regurgitate them as a Compensation Policy.
I’ve taken my Compensation Policy Pillar Worksheet and completed it for Outseta. Below, you’ll find the prompts I use for each bucket of a Compensation Policy, and on the right side column, you will find text I’ve copied from their website and blog posts written by their founding team.
Let’s dive in:
Market Position
Location
Performance
Transparency
Total Compensation Matrix
Want the Google doc template for my Compensation Policy Worksheet?
Up Next: From Worksheet to Official Compensation Policy
Next week (because I’ve committed my afternoon to gardening), I’ll dive into how I use the inputs from the worksheet to write a polished, employee-facing Compensation Policy:
That means you can use this week to review and complete the worksheet for your organization. Join me next week to transition your responses into an employee-facing Compensation Policy.
Questions?
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