1. SAMPLE Craft a Compensation Philosophy Learn about becoming a member
Lay the groundwork for compensation that is competitive, cost effective, and brand aligned.
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2. Our understanding of the problem
This Research Is Designed For:
This Research is Designed For:
This Research Will Help You:
This Research Will Help You:
Organizations that have difficulty recruiting because their compensation lags behind market offerings.
Organizations that have trouble engaging and/or retaining valuable employees because of compensation issues (e.g. unequal pay among peers).
Organizations that have difficulty ridding themselves of poor-fit employees because they lead the market in compensation.
Organizations without a compensation plan in place that want to develop one.
Create a compensation policy that articulates the compensation philosophy and illustrates what it will look like in practice.
Develop segment-specific compensation plans targeted at unique employee groups.
Roll segment-specific plans into an organization-wide compensation plan.
This solution set will not address compensation issues related to collective bargaining agreements because of wide variance in requirements.
Note:
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3. Reduce costs and drive performance with a compensation philosophy that reflects your business’s unique characteristics
Situation !
McLean & Co. Insight
The existence of a compensation philosophy give employees something to point to if practices aren’t measuring up.
Ensure that there is an ongoing commitment to the core objectives before posting them on the walls.
Employee compensation often comprises in excess of 70% of an organization’s ongoing operating expenditure, yet few organizations have plans in place to properly direct and control this expenditure.
Complication ?
A compensation philosophy needs to be specific in order to effectively direct compensation practices; it needs to specify the target approach (lag, match, lead) and the target market position it desires for each employee segment.
Resolution 
A well-designed compensation philosophy is the foundation of an effective compensation strategy. The first step in compensation planning is the development of a compensation philosophy that clearly articulates the organization’s high-level approach to pay for each of its employee segments, including its target competitive position.
A compensation philosophy should be primarily driven by business strategy and objectives. A compensation philosophy should include: compensation objectives, current structure, basis of job value, focus of variable compensation, approach to raises and promotions, competitive intent for each employee segment, and approach to administration.
These building blocks will help you to create employee segment plans that are legal, culturally aligned, and designed to support organizational goals.
Saying you have “competitive compensation” isn’t enough – articulate your competitive position. “Competitive compensation” is a vague term that is generally used to indicate that an organization pays at or around the midpoint of the market (P50) for base pay, total cash compensation (base + variable pay), or both.
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4. Guided Implementation
McLean & Company offers various levels of support to best suit your needs
Guided Implementation
“Our team knows that we need to fix a process, but we need assistance to determine where to focus. Some check-ins along the way would help keep us on track.”
DIY Toolkit
“Our team has already made this critical project a priority, and we have the time and capability, but some guidance along the way would be helpful.”
Workshop
“We need to hit the ground running and get this project kicked off immediately. Our team has the ability to take this over once we get a framework and strategy in place.”
Consulting
“Our team does not have the time or the knowledge to take this project on. We need assistance through the entirety of this project.”
Diagnostics and consistent frameworks used throughout all four options
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5. Step 1: Make the case for crafting a compensation philosophy
After completing this section you will understand:
Business factors and HR trends that are driving the need for compensation planning.
The risks of not implementing a compensation plan.
Common objections to, and challenges of, compensation planning.
Section summary and deliverables:
1. Make the case for crafting a compensation philosophy
2. Explore internal and external factors influencing compensation
3. Draft a compensation philosophy
Identify your compensation challenges.
Workshop activities in this step:
1.1
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6. Sample Slides
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7. Organizations with an up-to-date compensation philosophy are 1
Organizations with an up-to-date compensation philosophy are 1.9 times more likely to experience compensation success
Survey Findings:
Of organizations who currently have no philosophy, those that intend to create one are experiencing less success (26%) than organizations with no intent to create one (35%). This is likely because compensation-related issues (i.e. low success) have prompted them to invest effort in developing a compensation philosophy.
Of organizations who have a philosophy in place, those with an out-of-date philosophy are almost as likely as those with a current philosophy to experience compensation success. This makes sense if the philosophy is deemed “out of date” because of its age rather than because it is no longer aligned with business strategy or characteristics.
Source: McLean & Company, 2012; N=62
Despite its correlation with compensation success, only 26% of organizations have an up-to-date compensation philosophy.
Compensation strategy success
An organization is 96% more likely to experience compensation success if it is in the process of developing a philosophy rather than just planning on it.
Compensation philosophy: stage of development
Note: Compensation strategy success was computed using average agreement with seven survey statements. The exact questions used are available in the appendix.
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8. Your organization’s desired market positioning for salary will serve as the baseline for the compensation philosophy
Pay more than the average employer in target labor markets; above the fiftieth percentile (>P50).
1. Lead the market
Pay the same as the average employer in target labor markets; at the fiftieth percentile (=P50).
2. Match the market
Pay less than the average employer in target labor markets; below the fiftieth percentile (<P50).
3. Lag the market
In 2014, over 3/4 of organizations had more than one salary structure in place – up 31% from 2010.
Source: World at Work “Compensation Programs and Practices 2015”, N=513 to 1,285
4. Mixed strategy
The most common approach is a mixed strategy: a hybrid approach that combines one or more market positions for different employee segments.
The reality is that one size doesn’t often fit all – even within an organization. Organizations may have different base salary goals for different segments of employee roles. Your pay strategy should reflect these differences.
Example: A high-tech company may choose to lead the market in salary for its R&D and engineering staff, as those employee segments are critical to organizational strategy, but choose to meet the market in base salary for administrative staff because they are abundant in the labor market and moderately easy to train.
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9. McLean & Company Helps HR Professionals To:
Empower management to apply HR best practices
Develop effective talent acquisition & retention strategies
Build a high performance culture
Maintain a progressive set of HR policies & procedures
Demonstrate the business impact of HR
Stay abreast of HR trends & technologies 
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