At a glance
| Document type | HR policy template |
|---|---|
| Issued by | Employer |
| Templates included | 3 ready to use versions |
| Download format | Word (.docx) |
| Statutory reference | None cited on this page |
| Last reviewed | 27 August 2026 |
| Maintained by | Engage HR editorial team |
Compensation policy, salary structure and the appraisal policy
Three documents that overlap at the annual cycle. Combining them produces a document that is revised whenever any one part changes, which in practice means it is never current.
| Compensation policy | Salary structure | Appraisal policy | |
|---|---|---|---|
| What it decides | How pay is set, reviewed and approved. | What the components are and how a total is split across them. | How performance is assessed and rated. |
| How often it changes | Rarely. A change here is a change of philosophy. | When tax treatment, statutory position or benefit design changes. | When the rating model or the cycle changes. |
| Who owns it | The board or a compensation committee, on the recommendation of HR and finance. | Payroll and finance, with HR. | HR, with the business. |
| Published to employees | The framework, usually. Individual numbers, no. | The employee's own structure, in full. | Usually in full, since employees are assessed under it. |
| Failure mode | Describes a process without deciding anything. | Optimised for tax and unreadable to the employee. | Ratings distributed without any link to the money. |
How a compensation policy is structured
Ten sections. The first half sets the framework, the second half handles the cases that actually generate queries.
- Control block. Owner, approving authority, version, effective date, what it supersedes, next review.
- Purpose and philosophy. What the organisation is trying to do with pay: where it aims to sit against the market, and how it weighs fixed against variable. Two paragraphs, not a page.
- Scope. Which categories are covered, and which are governed by something else, such as a sales incentive scheme or an executive arrangement.
- Job architecture. How roles map to levels or bands, who maintains the mapping, and how a role is placed when it is new.
- Pay ranges. The range attached to each band, the reference point within it, and what governs movement through it.
- Components of pay. Fixed, variable and benefits, each with its own governance, eligibility and payment basis.
- The review cycle. Dates, inputs, the budget, calibration, who approves at each level, and when letters are issued.
- Out of cycle changes. Promotions, market corrections, counter-offers and internal equity adjustments, each with a stated approval route.
- Confidentiality and disclosure. What the organisation publishes, what it does not, and what employees may do with their own information.
- Governance and exceptions. Who may approve a departure, on what basis, and how exceptions are recorded and reviewed.
Keep the numeric ranges in an annexure rather than the body. They change on a different cycle from the policy, and putting them in the body means reissuing the whole document every time a band moves.
3 policy templates
Compensation Policy for full compensation policy template
The complete structure with drafting notes in brackets. Written for an organisation with defined bands and an annual cycle.
[Company Name] COMPENSATION POLICY Policy owner: [Owner Designation] Approved by: [Approving Authority] Version: [Version Number] Effective from: [Effective Date] Supersedes: [Previous Version and Date, or "None"] Next review: [Review Date] 1. PURPOSE AND PHILOSOPHY 1.1 This policy sets out how [Company Name] determines, reviews and approves the pay of its employees. 1.2 [Company Name] aims to position total fixed pay at [Market Position, for example the median of the comparator set defined in clause 5.2] and to weight variable pay more heavily at senior levels and in roles with a direct revenue line. 1.3 Pay decisions are made on the role, the market range for it, and the individual's performance and experience in it. They are not made on the basis of an offer held elsewhere, except under clause 9.3. 2. SCOPE 2.1 This policy applies to all employees of [Company Name] at [Locations]. 2.2 It does not apply to [Excluded Category, for example the sales incentive plan, which is governed by [Scheme Name], or executive arrangements approved by [Committee Name]]. 2.3 Nothing in this policy displaces the statutory position on wages, bonus, equal remuneration and statutory deductions applicable to [Company Name], which applies whatever this policy says. 3. JOB ARCHITECTURE 3.1 Every role is mapped to a band from [Lowest Band] to [Highest Band]. The mapping is maintained by [Owner Designation] and recorded in the job architecture at Annexure A. 3.2 A new role is placed by [Owner Designation] on a written role description from the hiring manager, using [Method, for example the levelling criteria at Annexure B], and is approved by [Approving Role]. 3.3 A change in duties does not by itself change the band. A re-banding requires a fresh assessment under clause 3.2. 4. PAY RANGES 4.1 Each band carries a range with a minimum, a reference point and a maximum, set out in Annexure C. 4.2 The reference point represents the pay for a person performing the role fully and consistently. New entrants to a band would ordinarily be placed below it, and sustained strong performance moves a person towards and beyond it. 4.3 An offer or a revision above the maximum of the range requires the approval of [Approving Role] and is recorded in the exceptions register. 4.4 An employee whose pay sits above the range maximum will not ordinarily receive a further increase to fixed pay until the range moves. [Where applicable: such employees may be considered for a one-time payment under clause 9.4 in place of an increase.] 5. MARKET REFERENCE 5.1 Ranges are reviewed against market data annually, before the review cycle, by [Owner Designation]. 5.2 The comparator set is [Comparator Description, for example organisations of comparable size in [Industry] at [Locations]], and the data source is [Source Description]. 5.3 [Approving Authority] approves any movement of the ranges. Movement of a range does not create an entitlement to an individual increase. 6. COMPONENTS OF PAY 6.1 Fixed pay. Paid monthly, structured as set out in Annexure D. The split across components is set for statutory and administrative reasons and does not change the total. 6.2 Variable pay. Eligibility begins at [Band or Grade]. The target percentage for each band is at Annexure C. Payment depends on [Basis, for example organisation performance against the measures approved by [Approving Authority] and individual performance], is assessed after the close of [Measurement Period], and is paid with the [Month] payroll. An employee who has resigned or is under notice on the payment date [is / is not] eligible. 6.3 Benefits. The benefits applicable to each band are at Annexure E. Benefits are provided under the terms of the underlying scheme or policy in force from time to time, and may be varied or withdrawn on notice. 7. THE ANNUAL REVIEW CYCLE 7.1 The cycle runs on the calendar at Annexure F, with revisions effective from [Effective Month] each year. 7.2 Inputs to a recommendation are: the performance rating for the cycle, the employee's position in the range, time in the band, and the market position of the role. 7.3 [Approving Authority] approves the total increase budget before recommendations are made. Managers recommend within the budget allocated to their function. 7.4 Recommendations are calibrated across each function by [Calibration Body] before approval, so that comparable performance in comparable roles produces comparable outcomes. 7.5 Approval is required from the reporting manager, the function head and [Owner Designation]. Recommendations that fall outside the guidance at Annexure G additionally require [Approving Role]. 7.6 Letters are issued within [Number] working days of approval and before the effective date. 7.7 An employee who joined after [Cut-off Date] is not included in the cycle and will be considered in the following one. 8. PERFORMANCE AND PAY 8.1 Increase guidance by rating is at Annexure G. The guidance is a range, not an entitlement, and position in the pay range affects the outcome within it. 8.2 An employee on a live performance improvement plan on the approval date will not receive an increase in that cycle. The position is reconsidered when the plan concludes. 8.3 A rating does not by itself entitle an employee to any particular increase, to variable pay, or to promotion. 9. CHANGES OUTSIDE THE CYCLE 9.1 Promotion. A promotion carries a revision determined under clause 4, approved as set out in clause 7.5. Where a promotion falls between cycles, the employee's next annual review is [Treatment, for example prorated or deferred by [Period]]. 9.2 Market correction. Where a role's market range has moved materially and an employee's pay has fallen below the range minimum, [Owner Designation] may recommend a correction outside the cycle, approved by [Approving Role]. 9.3 Counter-offers. [Company Name] does not ordinarily make a counter-offer to retain an employee who has resigned. A departure from this requires the approval of [Approving Role] and is recorded in the exceptions register with the reasons. 9.4 Internal equity. Where a review shows that an employee's pay is materially below that of comparable colleagues without a reason grounded in performance, experience or scope, [Owner Designation] will recommend a correction. 10. CONFIDENTIALITY 10.1 [Company Name] publishes the band structure, the ranges [or: the range widths] and the review calendar. It does not publish individual pay. 10.2 Employees who have access to pay information in the course of their duties will treat it as confidential. 10.3 Nothing in this policy prevents an employee from discussing their own pay. 11. GOVERNANCE AND EXCEPTIONS 11.1 A departure from this policy requires the prior written approval of [Approving Role]. 11.2 Exceptions are recorded by [Owner Designation] in the exceptions register with the reason and the approver, and are reported to [Approving Authority] [Frequency]. 11.3 An approved exception does not create a precedent. 12. REVIEW This policy is reviewed by [Owner Designation] on or before [Review Date]. Annexures C, F and G are reviewed annually ahead of the cycle and may be reissued without reissuing this policy.
Compensation Policy for short compensation policy for a small company
Under roughly a hundred people, formal bands are usually more machinery than the organisation can maintain. What still has to be decided is who approves what, and on what basis.
[Company Name] COMPENSATION POLICY Owner: [Owner Designation] | Approved by: [Approving Authority] Version: [Version Number] | Effective from: [Effective Date] | Next review: [Review Date] 1. WHAT THIS POLICY DOES It sets out how [Company Name] decides pay, when pay is reviewed, and who approves a change. It does not set anyone's individual pay. 2. HOW WE SET PAY 2.1 Pay is set on the role and on what the market pays for it, then adjusted for the person's experience and performance in it. 2.2 We aim to sit at [Market Position] for comparable roles at organisations of similar size in [Industry] at [Locations]. 2.3 Every role sits in one of [Number] levels, listed at Annexure A, each with a pay range at Annexure B. 2.4 An offer or revision outside the range for the level needs [Approving Role]'s written approval, and the reason is recorded. 3. WHAT MAKES UP PAY 3.1 Fixed pay is paid monthly in the structure at Annexure C. The split across components does not change the total. 3.2 [Where applicable: variable pay applies to [Roles or Levels] under [Scheme Name], and is paid after [Measurement Period] on the basis that scheme sets out.] 3.3 Benefits are listed at Annexure D and are provided on the terms of the underlying scheme in force at the time. 4. WHEN PAY IS REVIEWED 4.1 Once a year, effective [Effective Month]. The calendar is at Annexure E. 4.2 [Approving Authority] approves the total budget before any recommendation is made. 4.3 Managers recommend, [Owner Designation] checks the recommendations against the ranges and against each other, and [Approving Role] approves. 4.4 Anyone who joined after [Cut-off Date] is considered in the following cycle. 4.5 Letters are issued before the effective date. 5. CHANGES OUTSIDE THE ANNUAL CYCLE 5.1 Promotions carry a revision decided under clause 2 and approved by [Approving Role]. 5.2 Where someone's pay has fallen below the range for their level, we will correct it without waiting for the cycle. 5.3 We do not ordinarily make counter-offers to people who have resigned. Any exception needs [Approving Role] and is recorded. 6. WHAT WE PUBLISH 6.1 We publish the levels, the ranges and the review calendar. We do not publish individual pay. 6.2 Anyone who sees pay information as part of their job keeps it confidential. 6.3 Nothing here stops you discussing your own pay. 7. THE LAW The statutory position on wages, bonus, equal remuneration and statutory deductions applies to [Company Name] regardless of what this policy says, and this policy is applied consistently with it. 8. EXCEPTIONS Any departure from this policy needs [Approving Role]'s written approval in advance, is recorded with the reason, and does not set a precedent.
Compensation Policy for pay band and review cycle annexure
The annexures that change annually. Keeping them separate is what lets the ranges move without reissuing the policy.
[Company Name] COMPENSATION POLICY, ANNEXURE C, F AND G Approved by: [Approving Authority] | Effective from: [Effective Date] | Applies to cycle: [Cycle Name] ANNEXURE C: PAY RANGES BY BAND For each band, the range minimum, the reference point and the maximum are stated in annual fixed pay. The variable target is stated as a percentage of annual fixed pay. Band: [Band Name] Indicative roles: [Role], [Role] Range minimum: [Range Minimum] Reference point: [Reference Point] Range maximum: [Range Maximum] Variable target: [Target Percentage] Benefits set: [Benefits Set Reference] [Repeat the block above for each band from [Lowest Band] to [Highest Band].] Notes 1. The reference point is the pay for a person performing the role fully and consistently, not an average of current holders. 2. Placement below the minimum is not permitted. Placement above the maximum requires [Approving Role] and is recorded in the exceptions register. 3. Ranges are stated for [Location Group]. For other locations apply the differential at Annexure H. ANNEXURE F: REVIEW CYCLE CALENDAR Market data refreshed and ranges proposed: by [Date] Ranges approved by [Approving Authority]: by [Date] Increase budget approved: by [Date] Performance ratings finalised: by [Date] Manager recommendations due: by [Date] Function calibration completed: by [Date] Exceptions submitted to [Approving Role]: by [Date] Final approval: by [Date] Letters issued: by [Date] Revisions effective: [Effective Date] Payroll cut-off for the effective month: [Payroll Cut-off Date] ANNEXURE G: INCREASE GUIDANCE Guidance is expressed as a range of percentage increase to fixed pay, before adjustment for position in range. Rating: [Rating Label] Guidance range: [Guidance Range] Adjustment where pay is below the reference point: [Adjustment Description] Adjustment where pay is above the reference point: [Adjustment Description] Adjustment where pay is above the range maximum: no increase to fixed pay; consider a one-time payment under clause 9.4 [Repeat the block above for each rating.] Notes 1. Guidance is a range, not an entitlement. A recommendation at the top of the range for someone already above the reference point requires a written reason. 2. Recommendations outside the guidance require [Approving Role] and are listed for [Approving Authority]. 3. An employee on a live performance improvement plan on the approval date is not included in this cycle. 4. The sum of recommendations for a function must fall within the budget allocated to it. Managers cannot borrow against the following cycle. Record of approval Proposed by: [Name and Designation] | Date: [Date] Reviewed by: [Name and Designation] | Date: [Date] Approved by: [Name and Designation] | Date: [Date]
What it has to contain
| Element | Why it matters |
|---|---|
| A stated market position | Saying where the organisation aims to sit against a defined comparator set is what converts every later pay conversation from an argument about fairness into a question about data. A policy with no stated position cannot answer why one person's offer was matched and another's was not. |
| Ranges attached to bands, held in an annexure | Without ranges there is no structure, only a series of individual decisions. Holding the numbers in an annexure lets them move annually without reissuing and re-approving the policy, which is the practical reason most policies go stale. |
| Separate governance for fixed pay, variable pay and benefits | These are different promises. Fixed pay is contractual, variable pay usually depends on a scheme with its own conditions, and benefits are provided under underlying schemes that can change. Merging them into one cost figure is what produces disputes about what was actually committed. |
| A named approval route at each level | Manager recommends, function head endorses, HR checks against range and guidance, and a named authority approves anything outside it. Where the route is unstated, exceptions are approved by whoever is asked, and the structure erodes one decision at a time. |
| A stated position on counter-offers | Counter-offers are where pay structures come apart, because they reward the act of resigning rather than the role or the performance. Deciding the position in advance, and requiring a named approver and a recorded reason for any departure, is what keeps that contained. |
| Treatment of employees paid above the range maximum | Every organisation has some, and a policy silent on them leaves managers recommending increases that push people further out of structure. Saying that fixed pay does not increase further until the range moves, and offering an alternative, gives the manager something to say. |
| A confidentiality clause that does not overreach | Employers may reasonably require confidentiality from people who handle pay data as part of their duties. A blanket prohibition on employees discussing their own pay is a different thing, is widely ignored, and is difficult to enforce. Draft the two separately. |
How to write one
- Decide the philosophy before the mechanics. Settle two questions first: where the organisation intends to sit against the market, and how it weighs fixed pay against variable. Every mechanical choice that follows depends on these, and a policy drafted without deciding them produces internally inconsistent rules.
- Build the job architecture. Map roles to levels before attaching money to anything. Where roles have never been levelled, this is the bulk of the work and it will surface titles that do not match duties. Doing it after the ranges are set means fitting the architecture to existing pay, which entrenches whatever inconsistency already exists.
- Set the ranges from data, then check them against reality. Build the ranges from the market data, then plot current employees against them. Expect a proportion below the minimum and a proportion above the maximum. Those two groups are the real cost of adopting the policy, and they should be quantified before it is approved rather than discovered in the first cycle.
- Write the exception cases before the ordinary ones. Counter-offers, mid-cycle corrections, people above range, promotions falling between cycles and new joiners near the cut-off generate most of the queries. A policy that handles the ordinary case in detail and leaves these to judgement will be inconsistent within one cycle.
- Get it approved at board or committee level. Pay philosophy is a governance decision, not a functional one. Approval at the right level is also what gives HR the standing to decline an exception, which is the single most useful thing the policy does day to day.
- Publish the framework. Share the levels, the ranges or at least the range widths, the review calendar and the guidance approach. Employees who cannot see how pay is decided assume there is no method. Publishing the framework costs nothing and removes a large share of the suspicion around the cycle.
- Run calibration, and record what it changed. Before approval, compare recommendations across each function so that comparable performance in comparable roles produces comparable outcomes. Record where calibration moved a recommendation and why, because that record is what defends the cycle when someone asks why their increase differed from a peer's.
- Review the annexures annually, the policy rarely. Ranges, calendar and guidance are reissued each year on their own approval. The policy body should change only when the philosophy or the governance does. Conflating the two is what produces a policy nobody has read the current version of.
A policy that decides nothing is a calendar
Most compensation policies describe the workflow in detail and decline to make the decisions the workflow exists to implement. Test one against the five questions that come up every cycle: the range for a role, someone already above it, a counter offer, a mid cycle promotion, and a joiner near the cut off.
Most compensation policies in circulation share a defect. They describe the process in careful detail, and then decline to make any of the decisions the process exists to implement.
A document that says reviews are conducted annually, that managers submit recommendations, that HR reviews them and that management approves them has described a workflow. It has not said what the organisation pays for a role, what happens when someone is outside the range, whether counter-offers are made, or who can approve a departure. Every real decision remains where it was before the policy existed, which is with whoever asks most persistently.
The test is to take the five questions that come up in every cycle and ask whether the policy answers them. What is the range for this role. This person is already above it, what now. This person has an offer elsewhere. This person was promoted in month eight, do they also get a cycle increase. This person joined six weeks before the cut-off. A policy that answers all five is doing its job. One that answers none of them is a calendar with a cover page.
Answering them in advance is what keeps the cycle out of dispute. It is that HR can decline an exception by pointing at a document approved at board level, rather than by relying on its own authority against a determined function head. That is the practical function of a compensation policy and it is the reason approval level matters as much as content.
Bands, ranges and the two populations outside them
A range needs a minimum, a reference point and a maximum, with the reference point set at the pay for someone performing the role fully rather than at the average of current holders. Plotting employees against it produces two populations that need decisions: those below the minimum, and those above the maximum.
A range has three points: a minimum, a reference point and a maximum. The reference point does the most work and is the one most often defined wrongly.
It should represent the pay for a person performing the role fully and consistently. It is not the average of what current holders are paid, which merely encodes whatever history produced those numbers. Defining it as an average is how an organisation locks in a market lag it was trying to correct.
Once ranges exist, plotting current employees against them produces two populations that need decisions rather than principles.
Below the minimum. These are usually long tenured people whose pay drifted behind through a series of small annual increases, and their existence is the strongest argument for adopting a structure at all. Correcting them costs money in a single year, and the correction is often larger than the annual budget accommodates. Say in the policy that below-minimum pay is corrected outside the cycle, and plan the cost over a stated number of cycles rather than pretending it will resolve itself.
Above the maximum. These are usually people promoted into a band whose range they already exceeded, or hires made under pressure. They cannot be reduced, so the only available lever is to hold fixed pay until the range catches up. Saying this in the policy gives the manager something to tell the person, and offering a one-time payment as an alternative keeps the conversation from being purely negative. Leaving the case unaddressed means managers keep recommending increases that push the person further out, because there is nothing on paper telling them not to.
The cases that break structures
Structures fail through their exceptions rather than the ordinary cycle. The same few recur everywhere: counter offers, mid cycle promotions, joiners near the cut off, and internal equity where a new hire comes in above a longer tenured colleague. Each needs a decision made once and written down.
Compensation structures rarely fail through the ordinary cycle. They fail through the exceptions, and the same handful recur everywhere.
Counter-offers are the most damaging. Matching an external offer to retain someone rewards the act of resigning rather than the role or the contribution, and the pattern becomes visible quickly. Within a year, the reliable route to a correction is to obtain an offer, and the employees who did not do that are the ones whose pay falls behind. The defensible position is to decline as a default, treat a departure as an exception requiring a named approver and a recorded reason, and report the exceptions to the approving authority so the volume is visible to someone.
Mid-cycle promotions are the most common source of query. A person promoted in month eight receives a revision, and then the annual cycle arrives four months later. Whether they receive a further increase, a prorated one or none is a decision that has to be made once and written down, because managers left to decide it individually will decide it differently.
New joiners near the cut-off cause more resentment than their number warrants. Someone who joined a fortnight before the cut-off receives nothing while a colleague who joined a fortnight earlier receives a full increase. The rule itself is defensible; the failure is not telling the person at offer stage. Say it in the offer letter and the issue mostly disappears.
Internal equity is the case organisations avoid because it costs money. A new hire is brought in above a longer tenured colleague doing the same work, because the market moved. Once that is known, and it usually is, the organisation either corrects it or accepts the consequence. A policy that commits to identifying and correcting these cases without waiting for a complaint is one of the few places where a compensation policy can be ahead of the problem.
What to publish, and the statutory floor underneath
Publish the method rather than individual pay. The band structure, the range widths, the review calendar and the way guidance attaches to ratings can all be published without disclosing anyone's pay. Underneath sits a statutory floor that applies whatever the policy says, and it should be checked against the particular establishment.
Transparency in pay is usually framed as a binary: publish individual salaries or publish nothing. The useful middle is to publish the method.
The band structure, the ranges or at least the range widths, the review calendar and the way guidance attaches to ratings can all be published without disclosing anyone's pay. What that buys is significant. Employees who can see the method stop assuming there is none, and the annual cycle stops being an event where numbers arrive from nowhere. It also imposes a discipline on the organisation, because a structure that cannot be published is usually one that would not survive being examined.
What should stay confidential is individual pay, and confidentiality obligations should be aimed at the people who handle pay data in the course of their duties rather than at everyone. A blanket clause prohibiting employees from discussing their own pay is routinely ignored, is difficult to enforce against a person discussing their own information, and has the side effect of making internal inequity harder to discover and correct.
Underneath all of this sits a statutory floor. The applicable position on wages, on bonus, on equal remuneration for comparable work and on statutory deductions applies to the establishment whatever the policy says. The specifics turn on the nature of the establishment, its headcount, the state it operates in and the category of the individual. That position should be checked against the particular establishment rather than assumed from a general summary, and the policy should say expressly that it operates subject to it. Where the two ever appear to conflict, it is the policy that is wrong.
Common mistakes
| Mistake | Why it causes trouble | What to do instead |
|---|---|---|
| A policy that describes a process without deciding anything | It sets out that reviews happen annually and that managers recommend and HR approves, and says nothing about ranges, guidance or exceptions. Every actual decision is still made ad hoc, and the document provides no basis for declining anything. | Make the policy decide: the market position, the ranges, the approval route, and what happens in each of the five or six recurring exception cases. |
| Numeric ranges in the policy body | The ranges move annually, so the whole policy has to be reissued and re-approved each year. In practice it is not, and the published policy carries ranges that are two cycles out of date. | Put every number in an annexure that carries its own approval line and its own effective date, and reissue only the annexure. |
| Treating variable pay as part of fixed pay | The offer is discussed as a single annual figure. The employee treats the whole of it as expected income, then discovers the variable element depends on organisation performance and on being in employment on the payment date. This surfaces at the worst possible moment. | State fixed, variable and benefits separately in the policy and in every letter, and state the conditions attached to the variable element rather than referring vaguely to a scheme. |
| No position on counter-offers | The organisation matches offers case by case. Within a year the pattern is understood, and resigning becomes the reliable route to a correction. The people who did not resign are the ones whose pay falls behind. | State the default position, require a named approver and a recorded reason for any departure, and report the exceptions to the approving authority so the pattern is visible. |
| Ratings distributed with no link to the money | Managers rate generously because the rating feels like feedback rather than a budget decision. The recommendations then exceed the budget, HR cuts them proportionately, and the employees whose ratings were honest are penalised. | Approve the budget before ratings are finalised, publish the guidance range attached to each rating, and calibrate across functions before approval. |
| A blanket ban on discussing pay | The clause is ignored, cannot realistically be enforced against an employee discussing their own pay, and signals that the structure would not survive being seen. It also makes internal inequity harder to surface and correct. | Require confidentiality from people who handle pay data in the course of their duties, and say expressly that nothing prevents an employee discussing their own pay. |
Frequently asked questions
What should a compensation policy include?
A control block, a stated pay philosophy and market position, and the scope. The job architecture, with pay ranges held in an annexure, and separate treatment of fixed pay, variable pay and benefits. Then the review cycle with its approval route, the out of cycle cases including promotions and counter-offers, a confidentiality clause, and a governance clause covering exceptions.
Is a compensation policy legally required in India?
No general statute requires a private employer to publish one. The statutory position on wages, bonus, equal remuneration and statutory deductions applies to the establishment whatever the policy says. It turns on the nature of the establishment, its headcount, the state and the category of the individual, so check it against the specific case rather than assuming it.
Should pay ranges be shared with employees?
Sharing the method costs little and buys a lot. Publishing the band structure, the ranges or at least the range widths, the calendar and how guidance attaches to ratings lets employees see that pay is decided by a method. Individual pay is a different question and is normally kept confidential.
How should a compensation policy handle counter-offers?
By stating a default position, which for most organisations is that counter-offers are not made. A departure should require a named approver and a recorded reason, and the exceptions should be reported so the pattern is visible. Matching offers case by case teaches people that resigning is the reliable route to a correction.
What happens when an employee is paid above the top of their range?
Pay cannot be reduced, so the usual approach is to hold fixed pay until the range moves, and to consider a one-time payment in place of an increase where performance warrants recognition. The important thing is that the policy says so, since managers with nothing on paper keep recommending increases that push the person further out of structure.
How often should a compensation policy be reviewed?
The policy body rarely, since a change to it is a change of philosophy or governance. The annexures carrying the ranges, the calendar and the increase guidance should be reviewed and reissued annually ahead of the cycle, on their own approval line, without reopening the policy.
Who should approve a compensation policy?
The board or a compensation committee, on the recommendation of HR and finance. Approval at that level is what allows HR to decline an exception by pointing at an approved document rather than relying on its own standing against a determined function head.
Should the compensation policy cover variable pay?
It should state who is eligible, the target by band, the basis of assessment, when it is paid and the position of someone who has resigned or is under notice on the payment date. The mechanics of a particular scheme belong in the scheme document, which the policy should refer to by name rather than reproduce.
Running the pay cycle in Engage
Engage holds the band, the range and the current position for every employee on one record, so a manager's recommendation is checked against the range as it is entered rather than after the cycle closes. Calibration, approvals and the revised structure flow into payroll from the same place, which is what stops a cycle from ending in a spreadsheet that cannot be reconciled against what was actually paid.
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