Turning the calendar to a new year sparks reflection and resolution for many in their personal lives. But it can also be a great time to get philosophical with compensation and benefits planning for your organization. Compensation philosophy is a foundational building block to a successful total rewards program, and regular reviews help ensure your organization is healthy and effective.
In Salary.com’s 2018 Pay Practices and Compensation Strategy Survey, more than 30% of participating organizations reported not having a formal compensation philosophy, and another 4% were unsure.
A well-written formal compensation philosophy should be the compass that drives decision-making about compensation across the organization. It should be a core aspect of your organization as a whole, and provide consistency.
But with something as fundamental as philosophy, why should it be regularly reviewed?
A Reflection of Today’s Market
While a strong compensation philosophy drives consistency, it should also reflect the current environment. Have your priorities or business model changed since the last review of your organization’s compensation philosophy? If so, your philosophy may need an update.
Have there been changes in your industry that should influence your compensation philosophy? With unemployment at record lows and baby boomers reaching retirement age, today’s job market may also be something that has, or should, have an influence.
It’s important as well to regularly review your philosophy to determine whether your daily practices have gotten out of alignment with it. If they have, it is time to consider what needs to change.
A Tool for Success
With a philosophy in place, the organization has decisions to make about communicating it to employees. Nearly 35% of respondents in the Salary.com survey who had a compensation philosophy indicated it was not widely communicated. Of those who did share, methods varied from written documents available to the general employee population to management communication.
Insight into the philosophy can help employees understand why the organization makes the choices it does about how to pay employees, which can be especially helpful during the annual merit cycle.
The natural extension of your compensation philosophy is your compensation strategy, which is the approach to bringing your philosophy to life. Your strategy may include tactics, programs, tools and communications that can shift over time, even if your philosophy does not.
Whether a review this year shows it’s time to update your philosophy or not, conducting one means you’ll be better prepared for a successful future.