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Compensation Philosophy

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. An effective compensation philosophy promotes successful recruitment, excellent job performance and retention of talent. It also supports pay equity. 

An employer is not legally required to maintain a compensation philosophy. However, an employer should consider implementing one to promote transparency and equity, and to guide compensation design and implementation.