Author: Joseph J. Martocchio, Professor Emeritus, University of Illinois at Urbana-Champaign
When to Use
A compensation philosophy describes the compensation practices that support a company's overall business objectives and its market position relative to other employers that compete to employ similar talent. It should also express the compensation practices that influence an employee's experience at work.
An effective compensation philosophy may help:
- Describe compensation practices that promote successful recruitment, excellent job performance and retention of talent;
- Create trust and expectations that focus on excellence in job performance for current employees;
- Convey fairness and equity in the company's compensation practices (e.g., communicate to employees the goals and outcomes of the compensation process);
- Guide HR professionals in the design, implementation and evaluation of compensation system practices;
- Inform employees about their performance expectations and the rewards (incentives or merit pay increases) they can earn for excelling in their work; and
- Educate recruits on the company's compensation philosophy to help them determine whether there is a good fit between their employment objectives and the company's expectations.