| name | compensation-philosophy |
| description | Use when articulating or revising a comp philosophy — covers market positioning, geo strategy, mix, transparency, and differentiation. |
Compensation Philosophy
What a Philosophy Answers
A philosophy answers, in writing:
- Market positioning: target percentile (50th, 75th, 90th)? Differentiated by role family?
- Geo strategy: full-remote zones, follow-the-employee vs. follow-the-role
- Cash vs. equity mix: by level
- Fixed vs. variable: bonus, commission, retention — who's eligible
- Differentiation: top performers earn what relative to median?
- Transparency: full bands published? Ranges on offers? Confidential?
- Refresh philosophy: equity refresh, merit cadence, market adjustments
Bock's Principle: Pay Unfairly
From Work Rules!: "best-in-class" companies pay top performers materially more than middle performers — often 2x or more for similar role/level. The mechanism: structured calibration plus manager judgment within budget; not a formula.
This requires:
- Defined bands (so "more" is bounded by sanity)
- Performance system with calibrated ratings
- Pay equity audits to ensure "unfair" doesn't mean "biased"
- Manager training on the comp conversation
Pay-for-performance for creative work has limits (Pink, Deci): contingent extrinsic rewards crowd out intrinsic motivation. The answer is differentiation within a frame, not raw per-rating multipliers.
Market Positioning Examples
| Target | Implication |
|---|
| 50th percentile | Below market average (cost-conscious, often risk = retention) |
| 65th–75th percentile | Common at growth-stage tech; competitive but not extravagant |
| 90th percentile | Premium positioning; signals "we pay top of market" |
| 50th cash + heavy equity | Common pre-IPO; equity carries the upside |
The choice signals what the company believes about talent and risk. Document.
Geo Strategy Patterns
| Pattern | Pros | Cons |
|---|
| Single national band | Simplicity | Over-pays low-cost; under-pays high-cost; arbitrage |
| Multi-zone bands (Tier 1: SF/NY; Tier 2: regional; Tier 3: low-cost) | Common; balances market reality | Complexity; equity questions across tiers |
| Follow-the-employee | Simple when people move | Cost surprises |
| Follow-the-role | Comp set by primary location | Some constraints on remote flexibility |
Document the choice. Apply consistently.
Mix by Level
Typical pre-IPO:
- ICs L1–L3: 100% cash + small equity
- ICs L4–L5: cash + meaningful equity (equity 30–50% of total comp)
- Managers L4+: similar to ICs at parallel level
- Senior leaders: heavier equity tilt (often 50%+ in equity for VPs)
Sales typically has commission structure separate from this; align via on-target earnings (OTE).
Transparency Spectrum
| Level | Practice |
|---|
| Closed | Bands undisclosed |
| Bands shared | Employees see bands for their level |
| Full transparency | All comp public |
| External transparency | Bands on job listings |
Default recommendation: bands shared internally; ranges on offers and job postings; legally required jurisdictions drive minimum.
Refresh Philosophy
- Annual cycle: merit increases, promotion increases, equity refresh
- Off-cycle: promotions any time; exceptional performance; market re-leveling
- Equity refresh: typically annual; increasing in importance at growth stage
A company without an explicit refresh philosophy ends up with retention bumps for people threatening to leave — corrosive.
Common Failures
- No written philosophy
- Philosophy that contradicts practice
- Philosophy adopted from another company without context
- Mid-cycle philosophy changes
- Founders' verbal commitments that contradict written philosophy
- Aspirational philosophy ("we pay top of market") without budget to execute
Communication
The philosophy should be communicable to:
- Hiring candidates (relevant portions)
- New employees (during onboarding)
- Existing employees (annually, as part of comp comms)
- Board and investors (strategic implications)
If the philosophy can't be repeated in 2 sentences, simplify.
Cross-References
compensation-strategist agentpay-bands-market-data skillpay-equity-analysis skillequity-design skill
Key References
- Bock, L. (2015). Work Rules!
- Pink, D. (2009). Drive.
- Deci, E. L., Koestner, R., & Ryan, R. M. (1999). A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation.
