Hr Compensation Philosophy

---
name: hr-compensation-philosophy
description: Writes a one-page compensation philosophy covering market position, what pay rewards, how progression works, what is shared openly and with whom, review rhythm, and a trade-offs table for leaders to decide. Use for "run hr-compensation-philosophy", "write a compensation philosophy", "pay philosophy", "total rewards statement", "how should we pay people", "pay transparency policy", "stop pay deals case by case", part of the AI for HR Pack by Polar Bear.
---

# Compensation Philosophy

## When To Use
Pay decisions are made deal by deal and HR is left out of them. Each leader has a private rule, and the loudest hire sets the precedent. This answers: what does this organisation pay for, against which market, how openly, and who says yes to exceptions?

## When Not To Use
If leaders have already agreed the principles and you need ranges, run Salary Bands. This is not a pay review for named people; no individual pay is decided here.

## Inputs
- How pay is decided today, in a few lines (who decides, on what, how often)
- Any existing statements on pay, rewards or benefits
- The elements of reward in use (base, bonus, benefits, allowances, time off, development)
If you have none of this, I start from the six decisions below as open questions and mark the output as a first draft.

## Approach
The WorldatWork Total Rewards Model (worldatwork.org) sets the scope of reward beyond base pay. The CIPD pay progression guidance (cipd.org) lists the ways pay can move: service, performance, competency, skills and market adjustments. Cullen (2024), Journal of Economic Perspectives (doi:10.1257/jep.38.1.153), separates vertical transparency (pay across levels) from horizontal transparency (pay among peers); the evidence is observational, so the page promises no effect. The failure it prevents: a philosophy that says "we pay fairly" and decides nothing, so the next exception is argued from scratch.

## Workflow
1. Ask three questions: where your people work (country, and state where it matters), who the leaders are who must sign this, and which of the six decisions below are already settled.
2. Market position: which market you compare against (roles, location) and where you aim in it. You set it; I state what each choice costs in plain words, without figures.
3. What pay rewards: the role's level, skills, results, market scarcity. Say which ones, and which ones not.
4. Progression: which CIPD method or mix moves pay, and what triggers a move. No rating scheme is proposed; if leaders want pay tied to performance, that design and its fairness checks are theirs.
5. Openness: what is shared vertically (ranges per level) and horizontally (peer pay), with whom, and when. Where pay transparency law applies, list it as an adviser question.
6. Review rhythm and exceptions: how often ranges and pay are reviewed, and the named role who approves anything outside the rules.
7. Trade-offs table: each open choice with its cost, its risk, and the leader who decides.

## Output Format
```markdown
# Compensation Philosophy
## Market position
[Market compared against, where we aim, why]
## What pay rewards
[What moves pay here, and what does not]
## Progression
[Method, triggers, who approves]
## Openness
| What | Shared with | When |
|---|---|---|
| [ranges per level] | [audience] | [timing; adviser question if law applies] |
## Review rhythm, exceptions, total rewards
[How often; who approves exceptions; elements beyond base pay in scope]
## Trade-offs
| Option | What it costs | What it risks | Who decides |
|---|---|---|---|
| [option] | [cost] | [risk] | [named leader] |
## Decision
[Named leaders] choose each open trade-off and sign the page by [date].
```

## Done When
- Each of the six decisions is stated or listed as an open trade-off
- Every trade-off names the leader who decides
- Nothing on the page decides one person's pay

## Quality Bar
- One page; a paragraph per decision, no slogans
- No market figures or percentages that did not come from you
- Transparency effects are described as mixed evidence, never promised
- Claude writes the process, never the verdict: a named leader decides each trade-off, and every legal point goes to a qualified adviser for the country it concerns.

## Next
Run hr-job-architecture (Job Architecture) if levels are not yet defined.

## About the makers

This pack is made by Polar Bear, a consultancy built by ex-McKinsey founders with a dream to make AI work for People, not instead of them. We help our clients build people systems and AI-first ways of working, and we run our own company on Claude. If your team has outgrown the self-serve version, message Pauline (linkedin.com/in/paulinebertry).