Crafting a Market-Leading Compensation Philosophy as part of a Total Rewards Strategy: A Practical Guide for HR Professionals and New Business Owners

What are Total Rewards?

Total Rewards, according to AIHR (1), “is a coordinated effort driven by an organization’s overall business strategy to develop a workforce motivated towards excellence and growing with the organization through an effective and inclusive rewards package.”

At empact hr, we view Total Rewards as a major Culture Driver encompassing compensation, benefits, incentives, pay grades, and employee appreciation programs. A well-rounded Total Rewards strategy can ultimately benefit your organization by boosting job satisfaction and minimizing job dissatisfaction.

What do I mean by this? The concept of job satisfaction and dissatisfaction is rooted in Herzberg’s Two-Factor Theory. According to this theory, there are specific motivators, such as recognition and achievement, that influence job satisfaction, while there are specific dissatisfiers, such as salary and benefits, that can influence job dissatisfaction. So, all this to say, your Total Rewards strategy matters.


What is Compensation Philosophy?

For purposes of this blog, I will focus on one function of Total Rewards: Compensation Philosophy. Compensation Philosophy can be generally defined as the approach an organization uses to pay its employees (or contractors) in exchange for services or products. As you already know, you must pay people to convince them to work for you.

While this is considered a baseline expectation from employees and is NOT the sole driver of a Total Rewards strategy, a strong Compensation Philosophy has a tremendous impact on how current and prospective employees view your organization.

However, to be clear, a strong Compensation Philosophy will not compensate for (pun intended) unethical or “toxic” business practices.


Steps to Develop and Sustain Competitive Compensation Philosophy

  1. Know the Law
  • There are in-person and virtual trainings that can be completed by your compensation and/or HR expert(s), as well as a vast number of cost-effective resources available on the World Wide Web (but be careful with your sources).
  • There are also third-party experts and legal counsel that can assist in the process. It is crucial to invest time & resources towards compensation compliance efforts before attempting to craft a market-leading philosophy.
  1. Determine your Budget
  • After you’ve secured your organization’s compensation compliance, you can focus on the next foundational piece: budget.
  • A strong Compensation Philosophy must remain within the confines of business financial performance, but it must also be considered as a major component of the organization’s overall value proposition.
  1. Develop Pay Scales
  • Once a clear budget has been assigned to the organization’s Compensation Philosophy, it’s important to create some form of logic in determining employee pay – this is usually done in the form of Pay scales.
  • Pay scales are ranges that determine what a current or prospective employee can earn within the organization.
  • Pay scales provide a clear & user-friendly tool that anyone can use to follow a consistent Compensation Philosophy.
  1. Use Resources
  • However, to create sufficient Pay scales, you must utilize real-time market data - this can be obtained through salary surveys and reviewing other job openings for similar roles in your region.
  • You can also purchase expensive software to do this, or you can enlist the assistance of experts with a library of resources, such as empact hr.
  1. Formalize your Compensation Philosophy
  • Congratulations! You have successfully devoted hard work & effort into creating a viable, market-leading Compensation Philosophy! To reap the benefits of your Compensation Philosophy, you need to spread the word!
  • Crafting a formal, written Compensation Philosophy greatly enhances your organization’s Value Proposition and will boost your marketability to job applicants and the general public.
  • Your formal Compensation Policy should align with your core Mission, Vision, & Values, and it should highlight what separates your approach from the competition
  1. Sustainability
  • Your Compensation Philosophy is not a “one-and-done” project that you can just set and forget. It requires consistent maintenance in the form of audits, periodic reviews of market data, and acceptance of feedback from current and prospective employees.


Developing a market-leading Compensation Policy is not easy work. It requires consistent collaboration from major stakeholders within your organization and a focused look at the competition. Luckily, there are resources and services available to skyrocket your organization’s Total Rewards strategy. Don’t underestimate the importance and power of a strong Compensation Philosophy.

If you are interested in learning more about your Compensation Philosophy but aren’t sure where to start, let us at empact hr be your resource



What is a Total Rewards Strategy? A Practical Guide - AIHR



HR Advisor, HR Services

Connor is an HR professional with a passion for creating solutions that benefit people as well as business. He brings to Crescent and empact hr a wealth of experience in the healthcare / hospital space, where he managed recruiting and vetting, onboarding, compensation, FMLA, discipline, reengineered and systematized a performance management program for a 200-person organization, the employee life cycle, HR systems, and more.

He is a learner; he focuses daily on broadening his experience and expertise so he can have greater impact on his clients. His interests range from reading, researching health and nutrition, learning more about nature and sustainability, cooking, exercise, and connecting with people.