Compensation can be a strategic tool for organizations to attract, retain, and motivate their employees. More than a wages and salary earned by employee, compensation also includes benefits provided. An official statement specifying a company’s standpoint on compensation is known as compensation philosophy. According to the article, “It essentially explains the “why” behind employee pay and creates a framework for consistency. Employers can benefit from being transparent about their compensation philosophy and having an official pay strategy” (SHRM, 2015). Based on many factors, including the company’s financial status and employee talent requirements, the compensation philosophies are established by a collaborative effort with HR and senior leadership. A successful compensation philosophy supports the organization’s strategic plans, mission, and culture (SHRM, 2015).
When considering the A.P. Moller-Maersk Group study, Maersk established a compensation philosophy that would encourage quality, high performing talent to stay with the organization. After experiencing an increase in turnover, growth in business, and global expansion, Maersk’s executive members and HR leadership applied a people strategy session to focus on the company’s talent. As a result, the Maersk Group established a performance based compensation program. Divided into three groups, employees are classified by job performance and how their performance outcomes were attained. As stated in the study,