Your Comp Philosophy, Your Compass
When it comes to building a solid compensation framework, it’s tempting to rush into market data, pay bands, and bonus structures without pausing to answer the most fundamental question: Why are we paying the way we do?
According to a new series from Pearl Meyer, defining your compensation philosophy is the critical first step that shapes everything to follow.
Start With Why. Reflect on critical questions:
What’s the ultimate purpose of our compensation program?
What key objectives do we want our compensation programs to achieve?
How does compensation help us fulfill our mission and strategic goals?
Your pay philosophy should clearly articulate your key objectives - whether it's motivating performance, driving retention, or aligning with long-term value creation. It should also answer who the competitors for talent are in the marketplace.
What business and talent realities shape our reference points?
Are we leading, lagging, or matching the market in total rewards—and why?
Telling Your Story. A good pay philosophy connects the dots between pay components and performance and purpose. Ask:
What does each element of compensation incentivize?
How does our compensation tie to company values and culture?
What skills and competencies do we truly value and reward?
What is unique to us that should be factored into in the pay design?
Test. Tweak. Repeat. Your pay philosophy isn’t set in stone. To stay relevant, it must evolve and be re-assessed based on outcomes like:
Talent attractions: Are top candidates saying “yes”? Are top performers staying?
Performance linkage: Are rewards driving the expected results?
Shareholder alignment: Are equity awards truly aligned with value creation?
Run the Analytics. Look at offer acceptance rates, internal equity positions, metric correlation and model financial outcomes.
Bottom Line: Philosophy first, framework second. Pearl Meyer’s advice is simple but powerful: define your why to navigate decisions, ask the right questions and build from there.
Megan Wolf
Director, Practice, HR Policy Association and Center On Executive Compensation
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