If you’re familiar with compensation policies but need practical help, skip ahead to our template.
Compensation philosophy
The compensation philosophy is somewhat similar to a company mission statement with a focus on compensation. It’s supposed to answer two main questions:
What are your goals in terms of compensation?
Why do you believe in these goals?
Ultimately it will detail your convictions and expectations on pay, benefits, rewards, or recognition, and set the foundations of your internal policies.
It should be part of your company culture, as a reflection of your company values.
Compensation policy
Policies will be the concrete application of your philosophy: it should cascade from it, getting into more details about your market positioning, the criteria you want to use and leverage, the rules you are setting at a given time.
Eventually, it should become:
A compensation guide for decisions around budgeting, hiring, compensation reviews, promotions, etc.
A way for employees to project themselves compensation-wise on the long-run in your company
We've recorded a dedicated webinar (15 minutes) to help you get more familiar with What is a compensation philosophy and policy and how to set it up with Figures.
Then go to Account > Compensation Policy to start setting up your Compensation Policy on Figures.
Why define them?
Position yourself as a competitive and engaging employer on the market
It helps attract the best talents for you, as a clear reflection of your culture and values.
It increases retention by enforcing pay equity and secures your team with detailed and well-thought infrastructure when discussing a touchy and emotional topic.
Improve employees and People team & managers’ experiences
Guides people teams and managers through all processes involving compensation decisions: hiring, promoting, rewarding talents
Supports your organisation in case of crises or market changes: policies will evolve, and following the philosophy without having to rethink everything will for sure make it easier when the time comes
When should you introduce a compensation policy?
It's never too early to define your compensation philosophy and policy!
Every company benefits from clear compensation policies. It shapes culture, fosters transparency, and eases emotional salary discussions.
Since 93% of job seekers prioritize salary, it's vital to formalize and regularly reassess your approach, especially in a fast-changing market. Signs it's time to invest: turnover due to pay issues or negative feedback.
Signs that you need to invest in a compensation policy could be:
An increase in your turnover related to compensation issues (low pay, lack of raises)
Negative feedback from current or former employees about compensation practices
Create and implement your compensation policy
Before starting things off, some practical questions.
Who should be involved in defining your compensation philosophy and policy
Depending on your company size you will involve different people, but a safe bet is that the founders should lead the compensation policy, as it ties to company culture, with the People team facilitating and leadership providing input and alignment.
Do you already have internal/external resources you can start from?
You may already have useful ideas or articles (like this one!) to reference. Don’t reinvent the wheel - use existing content to guide you.
What’s your vision about compensation? Which values do you want to convey?
It’s time to take a good breath in, and lay on paper your strong beliefs about compensation!
What core principles do you want to apply when it comes to compensation?
You will have to define the main principles/values that are guiding your compensation decisions. There are plenty of options, but here are some great examples that you can find around you…
- They foster trust and a sense of common purpose - They promote self-improvement rather than negotiation - They have to be competitive by regularly updating the grid - They speak about problems openly - Every employee will benefit in the success of the company | |
- Compensation should be based on data - Compensation should reflect everyone’s ownership, meaning everyone should have equity - Compensation should be transparent | |
- Transparency: they openly share their approach and salaries to create trust, hold accountability, and be a resource for the industry - Simplicity: they aim to maintain an easy-to-understand formula - Fairness: they ensure those with the same role and responsibilities who are at the same level of experience are paid equitably - Generosity: they pay above market to attract the team they need, thrive as individuals, and avoid exceptions and inequity resulting from negotiation | |
At shine, they believe that a company has a high social responsibility. A dependent (child or elderly) certainly makes a difference in budget management. To them, “using your former “going out” budget to buy diapers and milk might not be enough”, hence they provide a “Dependent bonus”. | |
Zefir decided to build a salary formula rather than a more classic salary grid. Transparency means being able to make our compensation model public, both internally and externally. At Zefir, we have opted for a calculation formula that allows for modularity, clarity and upgradability over time. | |
Figures | At Figures, we decided to position ourselves on the market for financial compensation but to stand out by being above the market regarding benefits and equity, both willing to act towards an improved well-being and long-term incentive that could turn out as a real game changer. |
How does your compensation philosophy reflect your company culture?
This link between compensation and your culture and values will give a lot of legitimacy to your philosophy and will strongly anchor it in people's minds.
Is transparency part of your culture so that you will communicate clearly and openly about it? Are you fiercely pushing for performance, hence meritocracy will be the center of your philosophy?
What’s the employee’s upside?
You want your philosophy to be attractive to your team members, so you need to explicitly show them the upsides you envision.
Could equity be a game changer? Are you bringing them peace of mind with a very clear and predictive path for compensation evolution? Are you enforcing equality so they do not worry about it?
Key components of a compensation policy
Financial compensation | It includes all monetary compensation: - Fixed salary - Individual performance bonus/commissions - Team bonuses (profit sharing, Spiff, etc.) |
Equity | It’s your leverage to incentivize team members in the long run; include them in the adventure as potential shareholders! All kinds of equity can be included: BSPCEs, EMIs, Stock Options, RSU, free shares, etc. |
Benefits | A benefit is a non-wage compensation that is used to supplement part of an individual’s salary. It includes health insurance, additional time off, flexible work time organization, remote work flexibility, etc. |
Perks | A perk typically consists of something that could help the employee perform a job better. It includes things like company cars, gym memberships, standing desks, offsites/team buildings, etc. |
Communicate about your compensation policy
Your compensation policy must be:
Understandable for everyone: clear to both new and experienced employees, managers, and contributors.
Easily accessible: don’t hide it in hard-to-find places after communicating it once.
Complete: cover all aspects to avoid confusion.
It should be part of the company’s common knowledge, reflecting your culture and values. You can choose full, partial, or no transparency, depending on how you communicate as a company, each with its pros and cons.
For more on transparency, check out our webinar with Rachel Gibbs, Hung Lee, and Virgile Raingeard. Prefer reading? We have a great blog article too!
Template to create your compensation policy