Sample Compensation Decision-Making Guidelines

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Compensation Decision-Making Guidelines: <Company Name>

Field	Value
Document Type	Compensation Decision-Making Guidelines
Category	Communication & Administration
Company	<Company Name>
Version	<Version Number>
Effective Date	<Effective Date>
Last Reviewed	<Date>
Next Review Date	<Date>
Document Owner	<Title or Department> (e.g., Total Rewards)
Approver(s)	<Executive Sponsor Name and Title> • <Legal Contact> • <Finance Contact>
Confidentiality	Internal Use Only
Geographic Coverage	<Global/Regional/Country> (e.g., Global with country-specific appendices for <Country>)
Related Documents	Pay Philosophy • Job Architecture and Leveling Guide • Annual Compensation Cycle Playbook • Sales Compensation Plan • Equity Grant Guidelines • Mobility and Geographic Differential Policy

Document Control and Change Log

Version	Date	Summary of Changes	Author	Approver
<1.0>	<Date>	Initial release	<Name>	<Name>
<1.1>	<Date>	Added geographic differentials and remote work guidance	<Name>	<Name>
<1.2>	<Date>	Updated merit matrix and promotion approval thresholds	<Name>	<Name>

Purpose and Objectives

Provide clear, consistent, and compliant guidelines for compensation decision-making at <Company Name>
Align pay practices with the company’s pay philosophy, business strategy, and values
Enable fair and competitive pay outcomes that support attraction, retention, motivation, and internal equity
Establish governance, roles, and process controls for salary, incentives, and equity decisions
Ensure compliance with applicable laws in <Country/Region> and reduce legal, financial, and reputational risk

Scope and Applicability

In Scope

Base salary decisions: starting pay, merit increases, promotions, equity adjustments, and off-cycle changes
Short-term incentives: annual bonus programs, discretionary spot awards, and recognition awards
Sales compensation: quota-based plans, accelerators, and crediting rules (refer to Sales Compensation Plan for detailed mechanics)
Long-term incentives: equity awards (e.g., RSUs, PSUs, options) and grant sizing guidelines
Geographic differentials, remote work pay practices, and cost-of-labor alignment across locations
Market data usage, job architecture, leveling, and pay range management
Approval matrices, documentation standards, and audit requirements
Budgeting, forecasting, and financial controls in collaboration with Finance
Data privacy, pay transparency, and legal compliance requirements in applicable jurisdictions

Out of Scope

Benefits programs (health, retirement, time off), except where explicitly linked to compensation decisions
Executive compensation beyond the scope delegated by the Board or Compensation Committee
Collective bargaining agreements unless explicitly referenced in country appendices
Severance and change-in-control arrangements (covered by separate policies)
Independent contractor, intern, or temporary worker rates unless specified in local appendices

Applicability

Applies to all regular employees of <Company Name> worldwide unless superseded by country-specific addenda
For unionized employees in <Country>, collective agreements take precedence where conflicts arise
For executives at Grade <Gx> and above, Board or Compensation Committee approvals may be required

Guiding Principles

Market-Competitive: Anchor decisions to reliable market data reflecting the cost of labor for comparable roles and locations
Pay for Performance: Differentiate rewards based on sustained individual, team, and company performance against measurable goals
Internal Equity: Ensure pay outcomes are fair relative to peers considering role, level, skills, performance, and experience
Transparency and Simplicity: Use clear rules, plain language, and accessible tools to support understanding and compliance
Fiscal Responsibility: Operate within approved budgets and apply disciplined governance for exceptions
Compliance and Ethics: Meet or exceed applicable laws and uphold equal pay and anti-discrimination standards
Privacy and Security: Handle compensation data under <Company Name>’s data protection standards and applicable laws (e.g., <Country Law>)

Governance and Roles

Roles and Responsibilities

Total Rewards (TR)
- Own pay philosophy, structures, ranges, and the annual compensation cycle
- Select and maintain market data sources (e.g., <Vendor Name>), manage surveys, and set market positioning
- Publish guidelines, merit matrices, and modeling tools
- Conduct pay equity analyses and recommend remediation actions
- Provide training and decision support to HR and managers
HR Business Partners (HRBP)
- Advise managers on application of these guidelines
- Review pay proposals for alignment with internal equity and budget
- Escalate complex or cross-functional cases to TR
People Managers
- Make pay recommendations within approved ranges and budgets
- Document rationale tied to performance, skills, and market factors
- Communicate pay decisions effectively and respectfully to employees
Finance
- Set overall compensation budgets, funding pools, and financial guardrails
- Validate forecasts and support cost analyses
Legal/Compliance
- Advise on legal risks, pay transparency, and local regulatory requirements
- Review policies and exceptions that present elevated risk
Payroll and HRIS
- Implement approved changes accurately and on time
- Maintain auditable records and effective system controls
Executive Leadership
- Approve policy, budgets, and exceptions above delegated thresholds
- Champion consistent application and role-model pay philosophy
Compensation Committee/Board (if applicable)
- Approve executive compensation and equity pools as required

Decision Rights Matrix (Summary)

Decision Type	Manager	HRBP	Total Rewards	Finance	Legal	Executive/Committee
Hiring within range	Recommend	Review	Approve if exception	Verify budget	As needed	Not required
Promotion increase	Recommend	Review	Approve per thresholds	Verify budget	As needed	Above threshold
Merit cycle increases	Recommend	Review	Design and approve rules	Approve pool	As needed	Not required
Off-cycle adjustment	Recommend	Review	Approve per thresholds	Verify budget	Review high-risk	Above threshold
Equity grant sizing	Recommend	Review	Approve per policy	Validate pool	As needed	Committee for executives

Market Data, Job Architecture, and Pay Structures

Market Data Sources and Methodology

Use at least two reputable survey sources (e.g., <Vendor Name 1>, <Vendor Name 2>) matched by job, level, industry, and location
Age data to a common effective date using a comp growth factor of <Percentage> per year where appropriate
Target market positioning:
- Core roles: P50 (market median)
- Critical/Scarce roles: P60–P75
- Early-career roles: P45–P50 to support progression
Apply location-specific cost-of-labor differentials by city or country (e.g., <City A> vs. <City B>)

Job Architecture and Leveling

Jobs are assigned to a Family, Subfamily, and Level (e.g., Engineering • Software • Level <L3>)
Level descriptors clarify scope, complexity, and impact; managers must align roles to descriptors before pay decisions
All jobs map to a grade structure (e.g., Grades <G1> to <G15>) which drives pay ranges and eligibility rules

Pay Range Construction

Each grade has a minimum, midpoint, and maximum with defined range spread and midpoint progression
Standard design example:
- Range spread by grade group: Entry <40%>, Professional <50%>, Management <60%>, Executive <80%>
- Midpoint progression between grades: <10%–12%>
Compa-ratio guidance:
- Below 0.85: Typically indicates room for growth if performance is solid
- 0.85–1.05: Within target range
- Above 1.05: Limited increase capacity absent promotion or strong justification

Grade	Range Min	Midpoint	Range Max	Range Spread
<G7>	<Amount>	<Amount>	<Amount>	<Percentage>
<G8>	<Amount>	<Amount>	<Amount>	<Percentage>
<G9>	<Amount>	<Amount>	<Amount>	<Percentage>

Geographic Differentials and Remote Work

Location Strategy

Pay is aligned to the cost of labor in the employee’s assigned work location
Location assignment is determined by posted job location or approved remote designation
Geographic differentials are applied to base salary ranges; illustrative example:
- Reference market: <City/Region A> at 100%
- <City/Region B> at 90%
- <City/Region C> at 80%

Mobility and Changes in Work Location

Transfers to higher-cost locations may trigger an increase to align with the new range; timing may be immediate or phased over <Months>
Moves to lower-cost locations may result in maintaining current pay or adjusting within <Months> based on policy and legal constraints
All location changes require HRBP and TR review to ensure compliance with local law and transparency requirements

Currency and Exchange Rate Management

Base pay is denominated in local currency; global budgets may be set in <Currency>
Exchange rates are fixed for planning at cycle start using <Vendor Name> rate as of <Date>
Mid-cycle fluctuations do not change individual salaries but may affect budget reporting
Equity grants are converted using the 30-day average prior to grant date unless otherwise specified

Salary Increase and Pay Adjustment Cycles

Annual Merit Cycle

Timing: Occurs annually in <Month> with an effective date of <Date>
Budget: Company-wide merit budget set at <Percentage> of base payroll, with flexibility of ±<Percentage> for critical units
Eligibility:
- Employed on or before <Date> and not on final written warning
- On leave: Defer increases until return unless required by law
Merit Matrix Example:
- Performance ratings: Exceeds, Meets, Developing
- Compa-ratio bands: Below 0.85, 0.85–1.00, 1.01–1.15, Above 1.15
- Illustrative guidance:
  - Exceeds + Below 0.85: <5.0%–6.5%>
  - Meets + 0.85–1.00: <3.0%–3.5%>
  - Developing + Above 1.15: <0%–1.5%>

Promotions

A promotion occurs when an employee moves to a higher grade with increased scope and responsibility
Standard promotional increase: <Percentage> to <Percentage> of base, targeting a compa-ratio of 0.90–1.00 in the new range
Effective date aligned to transaction date unless local practice requires cycle-based effective dates
Multiple promotions within 12 months require TR review and Executive approval

Off-Cycle Adjustments

Used to address market hot skills, retention risks, compression, or material scope changes outside of standard cycles
Typical thresholds: Up to <Percentage> with HRBP and TR approval; above <Percentage> requires Executive approval
Require documented business rationale, internal equity check, and budget validation

Equity Adjustments to Address Compression or Pay Equity

Consider when a new hire offer creates compression with strong-performing incumbents in similar roles and levels
Typical adjustment: <Amount> or <Percentage> to restore relative position without exceeding range maximums
Must be coordinated with any merit or promotion increases to avoid stacking beyond guidelines

Short-Term Incentive (STI) Guidelines

Program Design

Eligibility: Grades <Gx> and above, employed on <Date> and in good standing
Target bonus opportunities by grade:
- Individual Contributor: <5%–10%>
- Manager: <10%–15%>
- Director: <15%–25%>
- Executive: <30%–60%>
Funding mechanics:
- Corporate performance multiplier: 0.0–<2.0x> based on <Revenue>, <EBITDA>, and <Strategic Metric>
- Business unit multiplier: 0.5–<1.5x> based on unit goals
- Individual performance modifier: 0.0–<1.5x> guided by performance ratings

Payout Timing and Proration

Payout in <Month> following fiscal year-end; subject to employment status rules
Proration for mid-year hires or job changes based on eligible months at each target
Country-specific tax withholding and social contributions apply

Discretion and Risk Adjustment

The CEO and TR may recommend downward discretion for risk or compliance events
Clawback provisions apply to material misconduct or restatements consistent with <Company Name> policy and <Country> law

Long-Term Incentive (LTI) Guidelines

Eligibility and Instruments

Eligibility: Grades <Gx> and above, plus designated critical roles as approved by TR
Instruments: RSUs for broad eligibility; PSUs for senior leadership; options where aligned with market practices
Grant sizing:
- Reference value by grade (at target): <Amount> or <Percentage> of base
- Mix example: Director 70% RSU / 30% PSU; VP 50% RSU / 50% PSU
Vesting:
- RSUs: Annual vesting over <3–4> years
- PSUs: Cliff vest at end of <3> years based on performance metrics (e.g., <Relative TSR>, <Revenue CAGR>)

Grant Practices

Annual grant date: <Date>, with off-cycle new hire and promotion grants on a monthly cadence
Valuation: Based on closing price on grant date or trailing average per plan terms
Blackout periods and insider trading rules apply; consult Legal for trading windows and Section <Rule Number> implications

Legal Disclaimer for Equity

Equity awards are subject to the terms of the governing plan and local law. Where plan terms conflict with local law, <Company Name> will work with Legal to provide compliant alternatives, which may include cash-settled awards in <Country>.

Sales Compensation Governance

Alignment and Controls

Sales plans must link pay to measurable bookings, revenue, or margin metrics
Plan components: Target incentive, quota, pay mix (e.g., 60/40), accelerators, decelerators, and caps
Credit assignment, territory changes, and quota relief rules must be defined before the plan year and documented
All plan documents require TR, Finance, and Sales Operations approval before launch

On-Target Earnings (OTE) and Pay Mix

OTE anchored to market for role and segment (e.g., Mid-Market AE vs. Enterprise AE)
Typical pay mixes:
- SDR: 75/25
- Mid-Market AE: 60/40
- Enterprise AE: 50/50
Accelerators example:
- 0–70% attainment: 0.5x
- 70–100% attainment: 1.0x
- 100–150% attainment: 1.5x–2.0x; caps at <2.5x–3.0x> unless Executive-approved

Decision-Making Framework

Standard Decision Steps

Confirm job architecture alignment and grade assignment using approved role profiles
Determine market reference and target positioning using current survey data for the specific location
Identify the applicable pay range and calculate current compa-ratio or proposed compa-ratio
Assess performance, skills, and internal equity across relevant peer group
Check budget availability and cycle timing; confirm eligibility and proration rules
Apply specific guidelines (merit matrix, promotion ranges, STI targets, LTI sizing)
Review for compliance risk, pay equity, and potential adverse impact
Obtain approvals per the Approval Matrix; document rationale and data sources
Implement changes in HRIS and notify Payroll; confirm effective dates and downstream impacts
Communicate decisions to the employee with clear rationale and next steps

Offer and Starting Pay Decisions

Target starting pay between 0.90 and 1.00 compa-ratio for mid-level roles; allow up to 1.05 for scarce skills with TR approval
Consider total compensation, including STI eligibility and new hire equity, to avoid compression
Sign-on bonuses:
- Use to address short-term gaps; typical range <Amount> or <Percentage> of base
- Include repayment terms if separation occurs within <Months>

Internal Equity Checks

Compare proposed pay to at least <N> incumbents in the same role, level, and location
Examine pay drivers: tenure, performance history, critical skills, and scope differentiation
Apply structured red flag review if the proposed outcome deviates by more than <Percentage> from peer median

Approval Matrix and Delegation of Authority

Monetary Thresholds and Approvals

Decision Type	Threshold	Required Approvals
Merit increase	Within matrix	Manager • HRBP
Promotion increase	Up to <10%>	Manager • HRBP
Promotion increase	> <10%> to <20%>	Manager • HRBP • TR
Promotion increase	> <20%>	Manager • HRBP • TR • Executive
Off-cycle base adjustment	Up to <5%>	Manager • HRBP • TR
Off-cycle base adjustment	> <5%>	Manager • HRBP • TR • Finance
New hire offer above range midpoint	Any	Manager • HRBP • TR
Offer above range maximum	Any	Manager • HRBP • TR • Executive
STI target change	Up to <5 pts>	TR • Finance
STI target change	> <5 pts>	TR • Finance • Executive
Equity grant above guideline	Any	TR • Legal • Executive or Committee

Exceptions and Escalations

Exceptions must include quantitative rationale, market data excerpts, internal equity analysis, and budget impact
TR logs all exceptions and reports quarterly to Executive Leadership and, where applicable, the Compensation Committee

Documentation, Systems, and Audit

Documentation Standards

Every pay decision must include:
- Business rationale linked to performance and market factors
- Internal equity comparison set and outcome summary
- Approvals captured in the HRIS workflow or attached as evidence
- Effective date, amount, and proration details
Retention period: Maintain records for at least <Years> in accordance with <Country> law

HRIS and Payroll Controls

Segregation of duties: Managers recommend; HRBP/TR approve; Payroll executes
System validations: Range minimum/maximum checks and eligibility rules enforced
Audit:
- Quarterly sample audit by TR and Internal Audit
- Annual pay equity analysis using <Vendor/Tool Name>, with remediation plan tracked to closure

Compliance, Transparency, and Pay Equity

Legal and Regulatory Considerations

Adhere to pay transparency laws in <Country/Region> including job posting range disclosures and candidate pay inquiry constraints
Comply with minimum wage, overtime, and classification rules per <Country> law
Observe works council or union consultation obligations where applicable

Equal Pay and Anti-Discrimination

Perform annual statistical pay equity analysis controlling for job, level, location, tenure, and performance
Remediate unexplained gaps beyond <Percentage> with targeted adjustments or structural fixes
Document methodology and consult Legal before implementing adjustments

Legal Disclaimer

These guidelines do not constitute a contract or guarantee of pay. <Company Name> may modify or suspend programs at any time, consistent with applicable law and required approvals.

Budgeting and Financial Planning

Annual Planning Cycle

Timeline: Budget targets set by <Month> • Manager planning in <Month> • Final approvals by <Month> • Effective <Date>
Modeling:
- TR provides workbooks with headcount, range positions, and proposed increases
- Finance validates total spend against targets and forecasts accruals
Contingencies:
- Establish reserve pool of <Percentage> for critical retention interventions
- Freeze or reallocate funds if business performance triggers are missed

Implementation Guidelines

Pre-Cycle Preparation

Update ranges and geographic differentials based on latest market data
Refresh job architecture and ensure roles are properly leveled
Load eligibility and performance data into HRIS; lock data quality checkpoints
Publish manager guides, FAQs, and merit matrices
Schedule training sessions and confirm approval workflows

During-Cycle Execution

Managers make recommendations within tools and run equity checks
HRBP reviews and calibrates across teams
TR runs analytics for budget, equity, and adverse impact
Approvals are captured per matrix; exceptions escalated
Payroll loads finalized changes and tests results

Post-Cycle Activities

Deliver employee compensation statements
Conduct post-mortem to capture lessons learned
Update documentation and plan for next review cycle
Refresh analytics dashboards and equity tracking

Risk Management and Controls

Key Risks and Mitigations

Market volatility: Use multiple data sources and apply timing adjustments
Manager variability: Provide training, calibration sessions, and system guardrails
Pay equity risk: Perform iterative checks and maintain remediation budgets
Data breaches: Limit access, anonymize datasets, and follow data protection protocols
Compliance failures: Maintain country appendices and legal reviews before policy changes

Review and Approval Process

Document Review Cycle

Frequency: Review at least annually by TR, with interim updates as needed for legal or business changes
Inputs: Market data refresh, budget outcomes, audit findings, manager feedback, legal updates
Stakeholder review order:

Total Rewards drafts updates and impact analysis
HRBP advisory group reviews for practicality
Finance reviews budget implications
Legal reviews for compliance
Executive sponsor approves and publishes

Effective date of updates: <Date> or as specified in release notes
Communication: Publish in <Intranet Site> and notify managers and HR via <Channel>

Country and Business Unit Addenda

How to Use Addenda

Use this global guideline as baseline; add country- or business unit-specific rules in appendices
Clearly mark any stricter local rules that override global guidance
Maintain a single source of truth repository at <Location/URL>

Metrics and Reporting

Core Metrics

Range penetration and compa-ratio distribution by grade and location
Gender and underrepresented groups pay equity metrics controlling for legitimate factors
Promotion velocity and post-promotion performance trends
STI payout distribution vs. performance ratings
Turnover of top performers vs. market benchmark
Budget adherence and exception rate

Reporting Cadence

Monthly dashboards to HR leadership
Quarterly readouts to Executive team
Annual report to Board or Compensation Committee for executive scope

Tools and Resources

Approved Sources and Tools

Market surveys: <Vendor Name 1>, <Vendor Name 2>
HRIS: <System Name> • Compensation module: <System Name>
Analytics: <Tool Name> dashboards for equity and budget monitoring
Communication resources: Manager talking points, employee FAQs, and compensation statements templates

Glossary of Terms and Definitions

Base Salary: Fixed cash compensation expressed as an annual or hourly rate
Compa-Ratio: Employee pay divided by range midpoint; indicates position in range
Range Spread: Difference between minimum and maximum of a pay range expressed as a percentage of the midpoint
Midpoint Progression: Percentage increase in midpoint from one grade to the next
STI: Short-Term Incentive; annual bonus program
LTI: Long-Term Incentive; equity or other long-term awards
PSU: Performance Share Unit with vesting tied to multi-year performance
RSU: Restricted Stock Unit with time-based vesting
OTE: On-Target Earnings; base plus target incentive for sales roles
Pay Equity Analysis: Statistical examination of pay for similarly situated employees controlling for legitimate factors
Geographic Differential: Adjustment reflecting cost of labor differences across locations
Calibration: Process to align ratings or pay decisions across managers to ensure fairness
Clawback: Policy allowing recovery of paid incentives under specified conditions

Communication Section: How <Company Name> Makes Pay Decisions

Purpose of this Section

This section is intended for employees and managers. It explains how pay decisions are made at <Company Name> in clear, everyday language.

Our Pay Philosophy in Practice

At <Company Name>, we aim to pay fairly, competitively, and in a way that recognizes performance and growth. We compare our jobs to similar roles in the market and use pay ranges to guide decisions. Your pay can grow through strong performance, increases in your role and responsibilities, and changes in the market.

What Influences Your Pay

Your role and level: Each job is placed into a level that reflects scope and impact
The market for your skills: We use independent surveys to understand competitive pay in your location
Your performance and growth: Strong performance and new skills can lead to larger increases over time
Internal equity: We compare pay among people in similar roles to ensure fairness
Location: Pay ranges differ by location to reflect local market rates

Annual Pay Review: What to Expect

Timing: We review pay once a year, typically in <Month>, with any changes effective <Date>
Process:
- Your manager reviews your performance, current pay position, and our pay guidelines
- Recommendations are reviewed by HR to ensure fairness and consistency
- Approved changes are reflected in your paycheck on or after the effective date
Communication: You will receive a summary explaining any changes and how they were determined

Promotions and Changes in Role

When you move to a higher level with greater responsibility, you may receive a promotion increase. The size depends on your new level, your experience, and where you are in the new pay range. We aim to place promoted employees at a competitive position in the new range.

Bonuses and Incentives

Many employees are eligible for an annual bonus based on company, team, and individual results. Targets vary by level. We share the plan details at the start of the year and confirm results after year-end. If results are below plan, bonuses may be lower; if results are strong, bonuses may be higher.

Equity and Ownership

Some roles receive equity awards, like RSUs or PSUs, which vest over time. Equity helps you share in the company’s long-term success. Awards are subject to plan rules and local laws, which we will explain when you receive a grant.

Offers for New Hires and Internal Moves

For new roles, we consider your skills, experience, the market rate for the position, and how your pay compares to teammates. We avoid creating unfair gaps and may use sign-on bonuses to bridge short-term differences.

Remote Work and Location Changes

If you work remotely or move to a new location, your pay may be adjusted to the market for that location. We will explain any changes before they take effect and give you time to plan.

Questions and Conversations About Pay

We encourage open conversations. If you have questions about your pay, talk with your manager or HR Business Partner. You can also review our pay ranges where disclosure is required by law in <Country/Region> and reference the resources on <Intranet Site>.

Commitments to Fairness and Compliance

We are committed to equal pay for equal work. We regularly review our pay practices to identify and address unexplained differences. We follow applicable laws and protect your personal data throughout the pay process.

Where to Learn More

Manager and employee guides are available on <Intranet Site>
For policy details, see the full Compensation Decision-Making Guidelines
For questions, contact <HR Contact Email> or your HR Business Partner

Final Note

Pay practices may evolve as our business and markets change. We will communicate updates in advance and provide materials to help you understand what is changing and why.

Document Information:

Document Type: Compensation Decision-Making Guidelines
Category: Communication & Administration
Generated: August 28, 2025
Status: Sample Template
Next Review: <Insert Review Date>

Usage Instructions:

Replace all text in angle brackets < > with your company-specific information
Review all sections for applicability to your organization
Customize content to reflect your company's policies and local regulations
Have legal and HR leadership review before implementation
Update document header with your company's version control information
At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.