4.5Compensation & salary policy
The essentials in 30 seconds
- Package compared on total gross: fixed (security), variable (measurable objectives), perks — yearly local benchmark.
- Internal fairness through the grid: job weighting, ranges per level, justified written gaps, audited equality.
- Transparent yearly ritual: budget, manager proposals, HR calibration, reasoned announcement — even with no rise.
Threaded mini-case — Amira calibrates without drama
Amira prepares rises: management's budget, local market benchmark per role, managers' proposals with written reasons, HR calibration checking gender gaps, then reasoned one-to-one announcements — including for the non-raised, with dated prospects. Proven fairness calms rumours. We will calibrate with her.
Last episode of cases 4.1-4.4 — Amira closes with compensation.
1. The package: fixed, variable, perks
Fixed (security), variable (performance: measurable objectives, not subjective ones), perks (health insurance, vouchers, transport, profit-sharing): the package is compared on total gross, not on fixed pay alone.
Local market benchmark every year: underpaid means turnover; overpaid without management means rigidity. Amira compares role by role, local market in hand.
2. Internal fairness: the grid that protects
Job weighting (expertise, responsibility, hardship), ranges per level, justified written gaps (experience, performance), audited and corrected gender equality. Without a grid, pay is set by favouritism — and leaks.
Amira has every gap written down: without objective justification, no gap. The equality index is published: she anticipates instead of enduring.
3. Rises: a transparent yearly ritual
Management budget, manager proposals (performance and market), HR calibration (fairness, gaps), reasoned announcement even with no rise. Silence toward the non-raised manufactures quiet quitting.
Amira announces one-to-one, with reasons and dated prospects: perceived transparency on criteria beats all amounts.
🔎 Concrete example — 🔎 Hands-on example — Drama-free yearly calibration
Amira's four-step ritual.
Budget + benchmark (local market median per role)
Proposals: share of headcount, written reasons (performance + market)
Calibration: gender gaps checked, fairness corrections
Announcements: reasoned one-to-one, even the noes (dated prospects)Result: fairness proven, not promised.
Reflex: equality is published: anticipate, do not endure.
Section vocabulary
- Salary policy
- A coherent set of pay rules and practices (grids, rises, variable pay, benefits).
Simple example: Amira's grid and yearly ritual, applied across the SME.
What it is not: rises decided case by case, with no rules.
Reflex: write the rules before the amounts.
- Internal fairness
- Consistency of pay between employees with comparable responsibilities and contributions.
Simple example: Two same-level packers paid in the same range, written gaps.
What it is not: paying per sympathy or power balance.
Reflex: every off-grid gap must be justified in writing.
- External competitiveness
- Positioning pay against the market to attract and retain talents.
Simple example: Amira adjusts roles below the local median to stop departures.
What it is not: aligning on a foreign grid with no local benchmark.
Reflex: yearly local benchmark, role by role.
- Variable pay
- The performance-linked part of pay (bonuses, commissions), on top of fixed pay.
Simple example: Workshop bonus on measurable objectives: deadlines and quality.
What it is not: a subjective bonus with no objectives and no measure.
Reflex: variable = measurable objectives, known in advance.
- Payroll
- The company's total pay cost; keeping it under control keeps the policy sustainable.
Simple example: Amira quantifies the budget before promising, to stay sustainable.
What it is not: raising with no budget and no tracking of total cost.
Reflex: quantify every promise against the budget.
In practice — Hands on — Build a coherent compensation policy
- Aim for internal fairness: structure pay with grids (role, level, experience) for consistency.
- Position yourself against the market (external competitiveness) to attract and retain, respecting legal minima.
- Combine fixed pay, performance-linked variable pay and benefits per your context and country.
- Watch equality (notably gender equality) and sustainability (payroll control).
Ready-to-say script — announcing a non-rise (1 min)
“This year, no rise for you, and I owe you the explanation: your role sits at market level and your objectives are partly met on [point]. Here is what will trigger the next one: [2 measurable expectations], reviewed on [date]. I stay available to discuss it.”
Say it one-to-one: reasons, criteria, dated prospects — silence manufactures departures.
Copy-paste template — yearly calibration sheet
ROLE / LEVEL: _______________ | GRID RANGE: _______________
LOCAL MARKET POSITION: _______________ | LEGAL MINIMA: OK / to check
PROPOSAL (written performance + market reasons): _______________
GENDER GAPS CHECKED: yes / corrections: _______________
ANNOUNCEMENT (reasoned, even with no rise) + DATED PROSPECTS: _______________Very small business / tight budget
With no full grid: three simple ranges per role family and written reasons are enough to start.
SME in Algeria
Amira aligns her grid with the local market and has minima and benefits validated by a lawyer and the accountant.
Variable pay
Two or three measurable objectives maximum, known in advance, paid fast: variable motivates when readable.
Non-raised
Reasoned announcement + 2 expectations + review date: without prospects, silence manufactures quiet quitting.
✓ Best practices
- Run a yearly local benchmark, role by role.
- Hold a grid with justified, written gaps.
- Announce even the non-rises, with prospects.
✗ Common pitfalls
- Favouritism-based pay setting.
- Secrets that leak and reveal unfairness.
- Silence toward the non-raised.
Key takeaways
- Salary policy balances internal fairness, external competitiveness, legal framework and sustainability.
- Tools: grids, fixed and variable (performance) parts, benefits.
- Fairness (including gender equality) and perceived transparency are crucial.
- Pay alone does not retain durably if work, management and meaning fail.
48h challenge — apply it tomorrow
Take 1 role in your team: place it in a simple range, check the local market and list possible gaps to justify. 20 minutes are enough.
- I can explain package, grid and yearly ritual.
- I know why perceived fairness motivates so much.
- I have calibrated 1 role or planned its date.
Frequently asked questions
Is raising pay enough to retain?
No. Pay is necessary (unfair or below-market pay makes people leave) but not sufficient: interesting work, recognition, management, prospects, atmosphere and meaning weigh as much. A well-paid but badly managed employee will end up leaving. Pay must cohere with the whole work experience.
Why is pay fairness so important?
Because perceived injustice is one of the most demotivating forces: discovering a comparable colleague is paid clearly more, for no objective reason, destroys trust. Hence internal fairness (objective criteria: role, skills, experience, performance) and transparency on rules. Gender equality is a major stake, often a duty. An opaque, arbitrary policy breeds distrust and tension, even with decent amounts.
Unexplained gaps are found between comparable colleagues. What must Amira do first?