1. Introduction
A pay policy is a core HR governance document that ensures fairness, transparency, and consistency in how an organization sets, manages, and communicates pay. It reflects the company’s values, compensation philosophy, strategic priorities, and legal obligations. The Pay Policy Outline provides a structured framework for defining the essential elements of a modern pay policy and guides organizations in aligning pay practices with both business goals and regulatory requirements.
Pay Policy - Sample Outline
2. Purpose and Principles
The first section defines the overall purpose of the pay policy — describing the “why” behind the organization’s approach to pay and what principles it stands for.
Key considerations include:
What the organization’s core values are regarding fairness, equity, and reward
How pay supports the overall people strategy and business goals
What message the pay philosophy should send to employees and candidates
A clear purpose creates coherence in pay decisions and builds trust in compensation practices.
Pay Policy - Sample Outline
3. Pay Setting and Total Compensation
The policy explains how pay is determined and what the total compensation package includes.
Typical questions addressed:
How base pay is set (market data, internal equity, job value, or a combination)
What components make up the total compensation package (salary, bonus, equity, benefits, perks)
How compensation packages are communicated to employees
The role of managers in explaining pay decisions and changes
This section ensures that employees understand how pay is structured and what factors influence their compensation.
Pay Policy - Sample Outline
4. Pay Progression and Career Growth
This section outlines how employees can grow their pay over time and what drives salary progression.
Key questions include:
What factors influence pay progression (performance, tenure, skills, promotions)
Whether the organization uses salary bands or pay ranges
How performance management is linked to compensation
How employees can access information about progression requirements
Where they can turn with questions
The outline highlights that this section directly supports Article 6 of the EU Pay Transparency Directive, which requires transparency in pay setting and pay progression.
Pay Policy - Sample Outline
5. Pay Transparency Commitment
This section clarifies the organization’s stance on pay transparency and how openly it communicates pay-related information.
Questions addressed include:
What level of pay transparency the organization is prepared to adopt
What information will be shared with employees and candidates
How the organization will meet legal requirements for disclosure, communication, and transparency
This section helps ensure compliance with EU transparency rules and builds employee trust.
Pay Policy - Sample Outline
6. Job Classification and Evaluation
A robust pay policy includes a clear description of how roles are evaluated and leveled to ensure consistency and fairness.
Topics include:
Which system is used to evaluate and level jobs (e.g., factor-based job evaluation)
How equal work and work of equal value are defined
How job architecture is governed, maintained, and updated
This section ensures pay decisions are tied to objective job value rather than subjective assessments.
Pay Policy - Sample Outline
7. Pay Equity and Fairness Monitoring
Organizations must monitor fairness continuously, not only during formal pay equity reviews.
Key questions include:
How pay equity is assessed (e.g., gender pay gap analysis, regular audits)
Who is responsible for identifying and addressing inequities
What actions are taken when disparities are discovered
How findings are reported and communicated internally
This section supports both compliance and long-term fairness.
Pay Policy - Sample Outline
8. Employee Awareness and Communication
This section describes how employees are informed and educated about pay policies and decisions.
Key considerations:
How pay practices and policies are communicated
Which channels employees can use to ask questions or challenge decisions
Effective communication builds understanding and reinforces trust in the pay system.
Pay Policy - Sample Outline
9. Governance and Responsibility
The final section clarifies ownership and accountability for the pay policy.
Key questions addressed:
Who is responsible for maintaining and enforcing the policy
How pay decisions are documented and reviewed
The outline also suggests optional reflection areas such as:
What training HR and managers receive in applying the policy
How consistency is ensured across departments or countries
Strong governance ensures the policy is consistently applied and continuously improved.
Pay Policy - Sample Outline
Summary
The Pay Policy Outline provides a comprehensive structure for defining how an organization sets, manages, monitors, and communicates pay. It covers pay philosophy, total compensation, pay progression, transparency, job evaluation, equity monitoring, communication, and governance. By addressing these areas, organizations can build fair, transparent, and consistent compensation practices aligned with both internal values and external legal requirements.