Compensation Philosophy is the bedrock of how organisations reward the talent required to achieve business objectives. At the very least, it provides guidance on where a company aspires to anchor its pay within a comparator group and what compensation elements will be covered.

Organisations typically communicate their Pay Philosophies via annual reports, proxy statements, remuneration reports, websites, amongst others. Managers and supervisors are critical change agents that organisations can leverage to also communicate their Pay Philosophy.

A well-articulated and communicated Pay Philosophy can go a long way in ensuring that employees perceive the employer and reward process as transparent, fair and equitable. It, therefore, engenders a culture of trust and openness between the employer and employee.

Companies must bear in mind that a Pay Philosophy is aspirational and the extent of its delivery or actualization is a function of what the business can support. Also, the Compensation Philosophy should be flexible enough to reflect the continuously changing business environment and focus. On the other hand, excessive flexibility could question the relevance of the Compensation Philosophy. Therefore, Management and HR professionals need to strike a balance on how much rigidity or flexibility is appropriate for the business.

In conclusion, it is extremely critical for businesses to have a well-defined and communicated Pay Philosophy. This will not only engender a culture of trust and transparency between the employee and employer, it will also help provide a focus for the rewards strategy and ensure alignment with corporate objectives. There should be a balance between ensuring consistency and allowing for sufficient flexibility in order to make the Philosophy continually reflective of market and business realities. To ensure relevance, the Philosophy must align with the business and HR strategies, as well as consider economic realities and what the reward focus will be. Given that the Pay Philosophy provides direction for the rewards strategy, it is important that organisations that are serious about attracting, retaining and motivating top talent must have in place a well-defined approach to how it wishes to remunerate employees for value creation.

 

This is an excerpt from our Newsletter  titled "Compensation Philosophy: How Do You Intend To Reward Your Employees?". Click here to download the publication.