Blog

Creating a Compensation Plan

Written by Greg Wolf

March 14, 2019

Creating a Compensation Plan Hero

Let’s explore how the key components of the compensation and total rewards planning process come together to create a comprehensive compensation plan for your organization.

In the article, the follow questions will be answered:

  • How do you write a compensation plan?
  • What should be included in a compensation plan?
  • What makes a good compensation plan?
  • What are the goals of a compensation plan?

How Do You Write a Compensation Plan?

You will need to complete a considerable amount of upfront work before writing formal administrative guidelines for your compensation plan. To get started, you’ll need to:

Once you have completed this preparation, you’ll be able to link together your compensation philosophy, compensation strategy, and compensation policies into a strategic comp plan for your organization.

Different Types of Compensation Plans

You may need many different types of compensation plans, depending on the positions in your organization and the programs you establish to compensate employees. For example, if you have some employees that are bonus eligible, you may need a variable compensation plan or a compensation bonus plan for those groups. If you offer a profit sharing program, you may need a profit sharing bonus plan. If you have sales staff, you may need a separate sales commission plan. The different types of compensation plans you offer will depend on your corporate pay philosophy and strategy.

With all types of compensation plans, it is important to conduct regular reviews to ensure they are aligned with current business priorities and are compliant with applicable laws. If you adjust or update your compensation philosophy, strategy, or policies, you should also revisit your compensation plans to ensure they remain in alignment with your goals.

Administer Your Compensation Plan

Once the upfront work is complete, formal written guidelines can help you administer your compensation plan from the HR perspective. They can also benefit managers during pay discussions with employees, outlining the pay packages and plans that employees are eligible for. The guidelines should contain both high-level direction, such as an explanation of your comp philosophy, as well as practical direction for carrying out day-to-day comp decisions.

Another valuable element to include in a compensation plan template is a description of how the plan will be communicated with employees. By communicating your philosophy and strategy clearly and consistently, you’ll be providing valuable insight to employees into the “why” of the decisions made that directly impact their compensation.

View all articles in this series:


For additional assistance with compensation planning, consider partnering with an experienced consultant.
Schedule a free consultation today.

Embracing Fair Pay in the War for Talent

Download our white paper to further understand how organizations across the country are using market data, internal analytics, and strategic communication to establish an equitable pay structure.

about the author
Greg Wolf is the Managing Director of the Consulting Practice at Salary.com. When the consulting team isn’t partnering with clients on improving their compensation and benefit programs, he’s usually outdoors with family and friends involved in fun activities.
Copy and paste this HTML to share this article on your site:

Insights You Need to Get It Right

The latest research, expert advice, and compensation best practices all in one place.
Ask This Question Before Transitioning Your Team to Long-Term Remote Work
Ask This Question Before Transitioning Your Team to Long-Term Remote Work Blog
As companies plan their return, some find there may be benefits to maintaining WFH.

Read More

2021 Trends: Compensation & Workforce Transformation
2021 Trends: Compensation & Workforce Transformation Guide
We're seeing a renewed sense of optimism and workforce innovation in 2021.

Read More

DE&I Panel Discussion: Moving the Conversation Forward
DE&I Panel Discussion: Moving the Conversation Forward Webinar
In this panel discussion we will cover what the issue is when improving DE&I.

Read More

Differences Between HR-Reported and Crowd-Sourced Compensation Data
Differences Between HR-Reported and Crowd-Sourced Compensation Data White paper
To make decisions about the value of a job, you need data from a range of sources.

Read More

CompAnalyst Market Data: Smart Matches, Fast Prices, and New Insights
CompAnalyst Market Data: Smart Matches, Fast Prices, and New Insights Product Sheet
The CompAnalyst Market Data platform is easier to use than ever before.

Read More

It's Easy to Get Started

Transform compensation at your organization and get pay right — see how with a personalized demo.