009: From Compensation Principles Worksheet to Compensation Policy
Another template for you to check out.
In last week’s newsletter, I shared the worksheet and 23 prompts I use to help companies define their Compensation Policy by focusing on Compensation Principles. The goal is to make a strong connection between:
Who do we need on the team?: the unique talent required to achieve your specific core business objectives
How do we need them to operate?: what do we need to offer to motivate this level of employee and align their efforts with organizational goals
This week, we'll take those insights and craft a polished, employee-facing Compensation Policy. Having a clear, formal document not only aligns leadership but also ensures transparency and equity across your organization. With time, this is a document you can share early in the interview process with candidates or even link to in job descriptions.
👇 Read on below to learn more about:
My Compensation Policy Template: The template I use to help companies build and communicate their Compensation Policy to their team + future team members.
My Compensation Policy Template in action: I’ll build off of last week’s example from Outseta.
Why Formalize Your Compensation Policy?
While the worksheet provides a foundation, a formal Compensation Policy serves multiple purposes:
Consistency: Ensures everyone understands how compensation decisions are made.
Transparency: Builds trust with employees by clearly communicating pay structures.
Compliance: Helps meet legal and regulatory requirements related to pay equity.
Recruitment and Retention: Attracts and retains top talent by showcasing your commitment to fair and competitive compensation.
Applied: The Compensation Policy Template
Between hitting publish on my newsletter last week and today, Outseta happened to write even more about their approach to Compensation! Outseta’s CEO, Geoff, goes deeper in his blog post, ‘Outseta's Choose Your Own Adventure Compensation Model’. While the exercise below is structured to craft an internal Compensation Policy, Geoff’s post is a masterclass in creating a Compensation Model aligned with the specific talent Outseta aims to attract.
And that is really the crux of this Compensation Policy work - to help people understand why they are being paid what they are being paid, you need to be able to make the connections between each component of your total compensation and how it either incentivized individual growth or company growth.
Important note: In case you’ve come across this post before 008: How to align leadership on your company's Compensation Principles, I want to make it extra clear that I’m just using Outseta’s public blog posts to demonstrate these worksheets and templates in action. Below *is not* Outseta’s actual Compensation Policy.
Let’s dive in! ✨
Contents: Start early to connect the Policy to Compensation
This is your table of contents! Just a nice and simple overview of what people can expect in the following pages. The template happens to be a Google Doc but you can copy this format in Notion or any internal wiki.
Eventually, you might add other sections to your Compensation Policy, like Career Framework or Performance reviews, so you can continue to repeat how it is all connected.
This page isn’t fluff; it is priming people to connect the Compensation Policy to the Compensation Types.
SECTION 01. | Our Compensation Policy
Introduction and Purpose
The Compensation Policy doc starts with high-level information about what a Compensation Policy is and why your company has one. This is a living document you’ll share with future team members who won’t be there the first, second, or third time you walk current team members through it.
This page aligns the purpose of this work and why people should care about it.
Our Compensation Policy + Compensation Principles
This is where the worksheet from last week’s blog post comes into play.
The worksheet is the tool you use to gather information, opinions, and approaches to compensation from your leadership team. If you have paid employees, you have a Compensation Policy already. Often, these policies live on in the implicit for too long, and the prompts from the worksheet help you gather the principles from your team.
When I use my Compensation Policy template (below), I will start by writing out the Compensation Policy Principles. Revisit the Compensation Policy Principles Worksheet and focus on the ‘Market Position’, ‘Performance’ and ‘Total Compensation Matrix’ sections.
Key Questions to Consider:
What is the persona of your ideal employee?
What type of compensation is going to be most meaningful to them?
What level of flexibility will you need to offer?
Will your organization need more hierarchy? Or more of a flat structure?
What behaviors are most critical to incentivize?
For Outseta, there were recurring themes around hiring experienced and entrepreneurial team members. They’re excited about people who opt-in to their unique ways of working and want to incentivize ownership.
With these ideals, I created three Compensation Principles for the team:
Standard Pay, Exceptional People
If you want someone to act like an owner, make them an owner
Great people value flexibility
Check it out in the format of the Compensation Policy template:
Once you have your first draft of Compensation Principles, return to ‘Our Compensation Policy’ and connect the dots. How do the principles you’ve uncovered explain:
who your company is looking to attract
how compensation is structured to motivate
Check out this post for more examples of actual Compensation Policies and Principles from real companies.
SECTION 02. | Compensation Types
We’re returning to the Total Compensation Matrix from the initial worksheet and tying all this work together. We’re answering ‘Why am I paid what I am paid?’ within the context of your company’s Compensation Principles.
Again, check out what this looks like for the (fake!) Compensation Policy I’ve written for Outseta:
Want the templates for the Compensation Policy Principles Worksheet and Compensation Policy Overview?
Conclusion
Creating a formal Compensation Policy is a game-changer for your organization. It's like turning on the lights in a room where everyone’s been fumbling around in the dark. With a clear policy, you’re giving your team the visibility they need to understand how compensation works, why it’s structured the way it is, and how they can grow within that framework.
One final recap:
Compensation Policy: an explicit overview of your company’s unique positioning on total compensation. This shows your company understands your market position and how to align individual and team performance and compensation to motivate employees and align their efforts with organizational goals.
Compensation Principles: An outline of your team's organizational design decisions and how they impact the high-level structure of your Total Compensation offerings.
Compensation Types: a line item overview of each type of compensation your company offers and why. The answers to ‘why am I paid what I am paid?’
I’d love for you to dive into these templates, fill them out with your team’s unique insights, and turn implicit ideals into a polished, actionable document. By following the steps and utilizing the template, you’re setting the stage for a workplace where everyone understands and values the compensation structure.
A well-defined Compensation Policy isn’t just about numbers—it’s a commitment to creating a transparent and equitable workplace that will also attract and retain top talent, ultimately driving your company’s success.
Questions?
If you have questions or are stuck somewhere, reach out or comment below! This work is crucial, and the effort you put in now will echo through your organization for years to come. Let’s continue to build workplaces where equity and transparency are not just goals but standards.