Do your reward outlays and efforts match up with the values your organization claims to hold near and dear?
Most compensation pros know the importance of defining a compensation - - or reward - philosophy. The philosophy establishes the objectives and priorities for the design and delivery of the organization's reward programs. It represents (hopefully) the consensus of leadership on what should be accomplished - and how - with the dollars spent on employee compensation. It also provides an invaluable roadmap for reward plan development and review.
Most compensation philosophy statements do a pretty good job of covering the basics. These include things like:
- Market definition: What is the labor market(s) in which the organization competes for employees, including key characteristics like geography and industry?
- Competitive position: At what level does the organization intend to position its reward offerings against the defined labor market? At market median (50th %ile)? More ... or less aggressively?
- Basis of job value: How will the organization assess the relative values of its jobs? By external market pay practice? By some internal valuation method?
Way too often, however, compensation philosophy definition overlooks elements that, while more qualitative than the basics highlighted above, are ultimately just as important to the manner in which we reward people: values and principles. Which is why your philosophy discussions with leaders might also want to cover questions like:
- What unique values must play a role in total compensation?
- Given these values, what core principles should guide how employees are rewarded, how reward programs are managed and how rewards are communicated?
A little more challenging to navigate? You bet; the important stuff always is. But without bringing attention and discussion to values and principles, we run the risk of reward hypocrisy - where our reward practices appear to disregard or even fly in the face of our espoused organizational values. Situations where:
We cherish respect and integrity, but there are no consequences for managers who game the pay system to syphon a disproportionate amount of scarce reward dollars for their team, deserved or not.
We applaud teamwork and collaboration, but our metrics and incentives for most employees focus nearly exclusively on individual results.
We claim employees as our most important asset, but we pay out handsome management incentive awards while the employee bonus pool goes unfunded.
We speak of transparency and courage, yet we decline to reveal their own salary ranges to employees in order to avoid the difficult (but important) conversations about how pay decisions have been made.
You get the drift. So do most employees.
My point is simply this. To pay people right, the compensation philosophy discussion that guides our work must ultimately address more than just the basics. as critical as we know them to be. It must also cover our core values, the principles that flow from them - and what we think they mean for how we deliver, manage and communicate employee rewards.
Ann Bares is the Founder and Editor of the Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations. She earned her M.B.A. at Northwestern University's Kellogg School and is a bookhound and aspiring cook in her spare time.
Thanks to Compensation Café