While the science is clear that money does not buy happiness, economists and organizational psychologists argue that compensation is a major factor for people when we are deciding where to work. Pay influences employees’ motivation, engagement, and productivity. According to cooperative academics, Sonja Novkovic and Karen Miner, the role of compensation “is to heighten and preserve human dignity by paying people adequately and fairly, and affording them autonomy to act” in order to “align personal success through organizational success.” To achieve such an alignment, here are five compensation questions organizations should be asking.

What is your compensation philosophy?

A compensation philosophy reflects what you are trying to achieve by rewarding people for their good work with pay and other benefits. It is typically accessible by all employees and serves the organization’s purpose and strategy. At a high level, the philosophy outlines what you plan to reward with compensation, such as performance or acquisition of skills, and explains why you have a plan in the first place. Fintech CEO Dan Price established the compensation philosophy of “always invest in people.”

What does the market say?

Knowing how your organization compares to competitors and cooperators could be the difference between losing great talent or disserving a movement of generous pay (more on that later). By gathering data, such as pay for jobs, work, and/or skills commonly found your industry, and evaluating the information compared to your compensation plan will uncover what sets your organization apart from the rest (or holds it back).

How aligned are your strategy and policies?

While a compensation philosophy will be broadly shared across the organization, your strategy will most likely be seen only by senior leadership because it is a ‘plan of attack’ that describes how the way you pay will attract and retain the best people. For example, will you pay above market rate for certain roles? All roles? Or will you rely on other aspects of your enterprise, like the proximity of sports and entertainment firms to celebrities and special events, to engage employees? Equity and fairness should inform how the plan is delivered.

Compensation policies explain in detail how the plan will be carried out fairly and equitably in service of the organization’s purpose and its philosophy for paying people. Policies are the specific guidelines for what a philosophy like “always invest in people” looks like when considering promotions, demotions, and paying people outside of a “salary range”.

How transparent is your process?

One of the greatest examples of compensation transparency I’ve ever heard was from Semco’s Ricardo Semler, on an episode of WorkLife:

ADAM GRANT: So Ricardo went rogue. He decided to trust his employees with information that managers normally hide. He put a computer in the company cafeteria that had everyone’s salary on it.

RICARDO: I remember it was about midnight. We left it there and one of the floors and we just plugged it into the wall. As soon as they realized how that worked, we then said, let’s start transparency by putting all these numbers as if they found it themselves. Oh, I found the payroll. I found the profit margin mechanisms and so forth…

ADAM: Wait, you planted that there for them to discover?

RICARDO: Yeah, we just kept throwing in more and more information and somebody would say, boy, I found the payroll. And then as people said, Oh, let me see. Let me see. Let me see. When they finally brought it up with us… that’s fine. But it was in the system the whole time. It’s good that you discover it!

Pay transparency can result in higher levels of job satisfaction and retention, especially when people leaders are consistent when sharing the philosophy, market studies, and process for providing increases or promotions with employees.

What do “living” and “generous” pay mean?

Paying a living wage reflects what earners in a family need to bring home based on the actual costs of living in a specific community, as opposed to the legal minimum required by employers. Generous pay means compensating folks above and beyond what it takes to live in a community and, according to Adam Grant, typically means raising everyone’s base pay. Paying generously drives motivation and fosters loyalty, especially when the process for doing so is transparent, consistent, and authentically aligned to the organization’s purpose.

What questions are you asking about compensation as we all consider what’s changing around the world as employees re-negotiate our work life amidst the work from anywhere reality?

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