Compensation policy: definition and implementation

Whether initiated by Human Resources or directly by the company’s management, the creation of a compensation policy makes it possible to establish strict rules for remunerating employees in a fair and equitablemanner fair, equitable and logical. But does “remuneration” include the variable part or bonuses from which employees may benefit? And what are the fundamental principles that need to be taken into account to create a genuine remuneration policy? 

What is a remuneration policy?

A compensation policy, or salary policy, is a set of principles, guidelines, and strategies put in place by a company or organization to determine how it will compensate its employees based on their work, skills, experience, and contribution to the company.

This policy aims to establish a fair and consistent compensation system that attracts, motivates and retains talent within the organization. It can also help to maintain the company's competitiveness in the job market and align employee interests with the company's goals and overall performance.

The compensation policy first determines the relative value of each position within the organization using job evaluation methods. It then establishes salary ranges for each job level, based on the job market, skills required, and performance.

Key elements of a compensation system can also include different forms of benefits, such as bonuses, bonuses, commissions, stock, benefits (insurance, paid time off, etc.), and their allocation based on individual and/or collective results.

An attractive and well-designed compensation policy helps to create a motivating and fair working environment, while supporting the overall objectives of the organisation. It must be in line with the company's culture and evolve according to internal and external changes that could affect the dynamics of the organization.

Why is it important to apply a salary policy?

Reason 1 : Social justice

A salary policy establishes a fair framework for employee remuneration. This ensures that salaries are determined consistently and based on objective criteria such as experience, skills and contribution to the job. A fair pay policy helps to prevent pay discrimination and promote a culture of equality within the organization.

Reason 2 : Attracting talent

A competitive wage policy helps attract qualified and experienced talent. When salaries are aligned with the labor market and offer competitive advantages, the company is more likely to recruit the best candidates for vacant positions.

Reason 3 : Employee loyalty

An appropriate compensation policy can contribute to employee retention. Fair and competitive salaries are incentives for employees to stay with the organization rather than seek opportunities elsewhere.

Reason 4 : Motivation and commitment

A transparent, performance-related pay policy can motivate employees to give their best. Knowing that their efforts will be rewarded, employees are more likely to invest themselves fully in their work and improve their productivity.

Reason 5 : Confidence

A clear pay policy establishes a climate of trust between employer and employee. When employees understand how their compensation is determined, they are more likely to feel valued and respected by the organization.

What steps should you take to create an attractive compensation policy for your company?

Creating an attractive compensation policy within a company requires a well thought-out, strategic approach.

Step 1: Analyze the job market

Start by conducting an in-depth study of the job market to understand salary trends and compensation levels for similar positions in your sector and region. This will help you determine where your company stands in relation to the market.

Step 2: Evaluate job categories

Identify the different positions within your company and carry out a job evaluation to determine their relative value in terms of the responsibilities, skills and experience required.

Step 3: Setting salary scales

Based on market data and job evaluations, establish salary ranges for each job level. These scales must be competitive, while taking into account the company’s budgetary constraints.

Step 4: Define performance criteria

Identify the individual and/or collective performance criteria that will be used to determine salary increases, bonuses and bonuses. Make sure that these criteria are clear, measurable and aligned with the company’s objectives.

Step 5: Integrate employee benefits

Include fringe benefits (insurance, paid leave, retirement, etc.) in your compensation policy. Benefits can be an attractive element in attracting and retaining talent.

Step 6: Promote transparency

Communicate transparently with employees about compensation policy. Explain how salaries are determined, what the performance criteria are, and what opportunities there are for advancement within the company.

Step 7: Consult stakeholders

Involve managers, employees and human resources in the compensation policy development process. Take their comments and needs into account to create a more inclusive and relevant policy.

Step 8: Communicate

Once the compensation policy has been finalized, make sure it is implemented consistently and fairly. Communicate clearly and effectively with employees about the changes and benefits of the new policy.

Models of compensation systems used in companies

Model 1: Fixed salary

This is the simplest and most common compensation model, where employees receive a regular fixed salary, usually on a monthly basis. This model offers financial stability to employees, especially if they have a permanent contract.

Model 2: Commission-based remuneration

This model employees on the basis of sales or sales targets achieved. Employees receive a percentage of sales achieved or contracts signed, which motivates them to increase their productivity and performance.

Model 3: Pay for performance

In this model, employees are compensated according to their individual or team performance. thosePerformance criteria are generally linked to company objectives, and are used to determine salary increases, bonuses or bonuses.

Model 4: Premiums

In this model, bonuses are awarded on a discretionary basis by management or managers for outstanding contribution or exceeding employee expectations.

Model 5: Profit sharing

More and more companies in France are introducing employee profit-sharing schemes. Employees receive a share of the company’s profits, which encourages them to contribute to the company’s profitability.

Model 6: Share purchase

This model is often used in start-ups or listed companies. Employees are offered the opportunity to buy company shares at a preferential price, giving them an incentive to contribute to the company’s long-term performance.