Compensation Philosophy - Part 2

We return to the key questions involved in articulating a compensation philosophy.

The primary question

What do you want your compensation program to do?  Try to drill down beyond the standard "attract, retain and motivate" to identify the (1 to 3) critical things necessary to push the organization forward on its path to success.  Examples of compensation objectives might be:

Driving and rewarding cross-division collaboration

Directing all discretionary pay dollars to the top individual performers

Encouraging employee learning and development in the technologies critical to the future of the Company

The secondary questions

Nailing down the critical objectives is the first step.  Then, it is important to detail how these objectives will be accomplished through the compensation program.  That brings us to some secondary questions, such as those below:

What do you see as organization's labor market or markets (other local employers across all industries?  other heavy manufacturers of similar size across the region?)?  Where do you intend to position compensation opportunities relative to this market or markets (at average or median levels?  higher?  lower?)?

What different pay elements are included in your compensation package (base salary?  profit sharing?  spot bonuses?  what about benefits?)?  What role does each of these play in accomplishing your primary objectives?

A compensation philosophy is simply a document (one page, please) which captures Leadership's agreement on what the compensation program should accomplish and how.  Don't just file it away.  Think of it and use it as an annual performance appraisal for your compensation program; let it be the statement of intent (what should be) against which your current compensation practices (what actually is) can be regularly measured.