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on August 31, 2021 Human Resources Employee Benefits Employee Engagement Company Culture Total Rewards Statements

What is a Compensation Philosophy Statement?

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Companies are adopting more transparency towards their employees regarding their compensation. Throughout this time, a compensation philosophy statement has become a bigger priority. What is this statement? And why do you need one?

Employers are increasingly implementing compensation philosophy statements. This is a simple yet highly informative document that outlines your company’s position. It adds reasoning behind your employee pay framework. It creates consistency across the organization. It also helps attract and retain employees that you value most. 

To stay competitive as an employer, this has become mandatory. However, creating one is not easy. Here is what goes into a compensation philosophy statement. 

Consider Many Layers

Human resources is typically the architect of compensation philosophy statements. They collaborate with the executive team to put together the report. They weigh on many factors including

  • The Financial Position
  • The Company’s Size 
  • Market Salary Data
  • The Industry Scope 
  • Business Objectives
  • The Ability to Attract Top Talent 
  • Unique Circumstances of Your Business 

The philosophy statement must be reviewed periodically as factors like market conditions can fluctuate at any time. The less favorable those conditions are, the harder it will be to secure qualified candidates. You will also need to contribute to total rewards that you haven’t necessarily budgeted for along the way. Therefore, some flexibility must be added. 

See what other factors must be prioritized with our Free CEO Scorecard Strategies

Even though some factors are uncertain, it’s important to create the statement. Without such a plan, inconsistency will cause confusion across the organization. It may lead to employee disengagement if they feel they are treated differently. Human resources will end up with more work appeasing dissatisfied workers. 

The best compensation philosophy statements support your business goals. They include operating objectives and total reward plans. They are robust and adjustable over time. This maintains both a structured framework and future flexibility. 

Be Mindful of Business Goals

The statement creates transparency that builds trust with prospective and current hires. It will motivate them to perform to the best of their abilities each day. One of the best uses is to adequately reward employees who have gone above and beyond their job description. 

By outlining a proper compensation philosophy statement, you need to identify your total rewards strategies. Explain the parameters of your pay programs. 

It is key in separating your organization from competitors in its employer brand. It defines base pay, variable compensation and benefits. Then, it adds the reasoning for why those offerings exist. 

The best statements detail your plans to reward employees sufficiently. Employees are assured of equal pay for equal work. This creates a more inclusive culture among your workforce. 

There are still a few technical details to clarify. It must be fiscally sound and legally compliant before you can proceed with it. It must even communicate every piece of information concisely. Employees should perceive your compensation philosophy statement as fair and representative of admirable company values. Overall, it needs to contribute to the employer brand. 

Include Key Stakeholders

Human resources lead the effort to create a valid compensation philosophy statement. However, successful collaboration with the leadership team will help you obtain useful information. This will get all key players to buy into your approach. Your organization will have a clear direction to compensate employees. 

The best compensation philosophy statement includes a robust total rewards program.

See how backstitch’s digital total compensation tool informs and updates your employees in real time across multiple formats.

Sydnie Fultz

Creative Content Manager

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