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How Do You Define a Compensation Philosophy?

January 22, 2019  |   Compensation,Uncategorized   |     |   Comments Off on How Do You Define a Compensation Philosophy?

CompensationHere are some elements your organization should include in its Compensation Philosophy.

Describe what your philosophy is intended to do. For example:

• Our Company designs its programs to challenge participants as well as reward them for superior performance for our Company and our stockholders. We believe that our compensation program must:

– Align employees’ interests with those of our stockholders by including a portion of their total pay that is at risk dependent upon performance in the form of annual incentive awards that are paid based on Company financial, operating results and individual performance. The amount of their pay tied to results in increases for higher positions, such as top executives.
– Provide appropriate rewards for financial and individual performance in support of the Company’s strategy, while requiring an appropriate evaluation of risks; and,
– Be market-competitive to attract, motivate and retain highly qualified employees.

• Define how the Company’s pay is tied to performance, both for the Company and the individual.
• How does the Company determine pay?
• Describe the design of your Company’s Compensation Program.
• The Company’s compensation program includes direct compensation that is:

Market-based: Competitive with our peer group and general industry standards, with total compensation targeted on average at market medians, but typically set at the market median for base salary but reaching the 75th percentiles for total pay, based on the level company and individual performance;

– Competency-paced: Flexible enough to match the progress of fast-rising performance but resistant to salary advancement if competency levels remain static; and,

– Contribution-driven: Reward those who make a difference, creating meaningful compensation distinctions among different levels of performance and achievement, while avoiding annual compensation actions that foster an “entitlement mentality.”

At a Glance – Our Compensation Elements

BCR_Jan 2019 Blog_CompElements

• What are the considerations for that your Company uses for its compensation program?

Base Salary
– Base salary levels are established to ensure the attraction, development and retention of superior talent while also taking into account an individual performance.
– Base salary is based on:

• Individual performance;
• Internal pay equity;
• The need to attract, motivate and retain qualified employees in a highly-competitive market;
• Changes in individual responsibilities; and,
• Relevant external benchmarking.

Incentive Plan Objectives
The annual incentive compensation plans ensure a portion of each employees’ compensation is at-risk by linking such portion of compensation to certain key Company and individual performance objectives and rewarding employees, when appropriate, for their efforts in optimizing the Company’s profitability and growth consistent with sound and ethical business practices, and in appropriate level of risk-taking.

Contact Us

BCR has helped many companies develop and communicate their rewards philosophy as well as develop guidelines to put on the application of the philosophy in practice in a fair and consistent manner. Reach out to discuss how we may be of service.

Written by: Barbara Manny, BCR President & Consultant

BCR is a local, minority-owned firm with more than 25 years experience in serving non-profit, public, and privately held entities in the key areas of Benefits and Compensation Consulting, Performance Management, Human Resource Organization Development, and Human Resource Information Systems and Processes.

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