The Ten Steps of building your Compensation Strategy

At early stage companies, it’s typical to make pay and titling decisions on a one by one basis. Each decision feels good and sensible in the moment, but the combination of lots of these decisions can end up looking like something closer to chaos. To get out of this maelstrom, you need a way to make internally consistent decisions.

You need an overarching philosophy to call upon. And with as sensitive a topic as compensation, a lack of a consistent framework and philosophy leads to decisions that are ripe for misinterpretation. If you fail to spell out exactly how you’re making compensation fair, everyone’s just going to assume that it isn’t.

Building your first strategy from scratch can be daunting, so in this “Building Compensation” blog series, we’ll be both taking you through this journey step by step, as well as sharing companion guides to help you build your strategy, through practical tips.

Step 1. Define your compensation philosophy

The first step in understanding what fair compensation is going to look like at your company is understanding what the most important pillars of your compensation philosophy will be. Everything you will be, also defines what you won’t be. If you’re looking for a guide to help you through this process, read our blog and check out our guide.

Step 2. Determine where you’ll play in the market.

Will you be at 100th percentile, and beat out any competitors, or stick to 50th percentile and market rates? You’ll also need to decide what your mix will be between equity vs. cash vs. benefits, and whether or not you’ll seek to globalise or localise salaries. Your philosophy from step 1 should help you decide this.

Your compensation philosophy – and what outcomes you’re trying to achieve – may also lead to nuances that buck conventional trends. We’ll be releasing a guide alongside the third “Building Compensation” blog (to be released) covering how to flow your compensation philosophy and culture through to how you put together pay, as how you mix your compensation components (will you have bonuses? benefits? perks?) will also feed into your overall compensation strategy.

Step 3. Plan your cadence

Depending on how you decide to do compensation, there can be a lot of work involved, from calculations to benchmarking to levelling to calibrations. It pays to be prepared and have your cadences planned out well in advance.

Step 4. Create levelling frameworks for your company

Once you’ve settled on a percentile, the obvious question is how that percentile is measured – obviously someone very junior and very senior will get paid differently, so it’s time to start determining what ‘junior’ and ‘senior’ mean. If you’re going down a benchmarking route for setting salaries, it makes sense to tie your framework levels to those used by your benchmark provider of choice. Compensation aside, levelling frameworks that map competencies, skills and behaviours to career progression are a key part of demonstrating employee development and growth.

This is discussed in our second Building Compensation blog (to be released), and will be accompanied by a guide to creating your own levelling frameworks. Spoiler alert: If you’re tiny, figure out the generic competencies and behaviours first that will apply to all roles, as this will give you a starting point before you’ve figured out all the nitty gritty details around crafts for different disciplines.

Step 5. Set your Salary Bands

In our second (to be released) “Building Compensation” blog, we’ll talk about how we created our salary bands at Pento. We’ll be releasing guides alongside future blogs in the series around how you can build out benchmarked salary bands yourself too.

Step 6. Decide how to allocate equity

In our first Building Compensation blog, we’ll talk about how we generated a formula for Equity allocations at Pento. We have a guide in the works around how you can create a similar equity formula if you want to piggyback on ours – we don’t mind!

Step 7. Assign levels and bands to individual employees

Time to match up the levelling frameworks to how you’ve decided to set compensation!

Step 8. Decide where you want to be on the salary transparency spectrum

Will you be fully internally (or even externally!) transparent to the individual salary level, will you release bands internally only, or not release information on compensation at all? There are myriad places you can fall on this spectrum, and it will affect how you communicate and educate your employees around compensation, which is why you need to figure this out before you talk about changes.

We’ll be talking more about this in the fourth Building Compensation blog (to be released), alongside a guide to going on the salary transparency journey.

Step 9. Communicate compensation changes

Compensation is a very personal and often not-chill topic, for understandable reasons. Whenever communicating changes, whether to strategy, or to individual pay, it’s important to go back to the why, and it can help if you’re able to make things explainable. Compensation philosophies, levels, and salary bands, can all help in making compensation decisions accessible and explainable – even when someone’s raise could always have been higher!

Step 10. Get People Paid

We can help you out with that, dontcha know? 😉

Remember, there's no totally perfect way to structure compensation, and what’s right for you might not be what’s right for another company – every approach has pros and cons, promoters and detractors. Always have an eye to your company’s principles, and making sure your build up of compensation drives the right outcomes – both business and cultural outcomes – and you won’t steer too far wrong.

And here you have the first 10 steps. This is just the beginning - join us in this 4 part “Building Compensation” series as we explore how to create a compensation strategy that fits your company.

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The Ten Steps of building your Compensation Strategy

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