HR Toolkit


HR Policies & Employment Legislation

Sample Policies on Common HR Topics

Compensation

Compensation is a fundamental component of employment and one of the most critical HR management policies. While compensation traditionally refers to employment wage, best practice in today's workplace considers total compensation to include base salary, bonus or incentive plans, benefits, and non-cash compensation.

Organizations should establish and communicate clear principles by which employees are paid. At a minimum, organizations need to ensure that their compensation policy adheres to employment legislation. Elements of compensation that are regulated by provincial employment standards acts include:

  • Minimum wage
  • Rate of holiday pay
  • Overtime pay
  • Equal pay
  • How often employees receive their pay
  • How payment is made
  • Contents of pay stub or pay sheet (information that must be tracked and reported to employees)
  • Deductions
  • Gratuities
  • Payroll records (information that must be tracked and documented)
  • Vacation pay

Additionally, many organizations adopt compensation principles that ensure fairness and equity in pay rates and salary administration, and transparency in compensation practices.

An effective compensation policy is based on objective and up-to-date job descriptions, effective job evaluation and performance management, and relevant salary administration. Salary administration encompasses establishing:

  • Salary ranges
  • Decision-making criteria for salary increases
  • Time frames for salary review

Establishing salary ranges

Organizations need to determine where they want to pay specific jobs/job categories in relation to the employment market (industry and regional compensation norms). Based on availability of qualified employees, funds available for salaries, ability to offer non-monetary attractors (such as vacation, benefits or alternative work arrangements) organizations make a choice to pay at the low end of the market, in the middle, or at the high end.

Organizations should conduct periodic reviews of their salary ranges to ensure that they are in line with the current employment market and their targeted position within that market. While large organizations may conduct their own salary benchmarking on a yearly or on-going basis, smaller organizations can purchase salary surveys when needed. Additionally, organizations need to determine the number of salary ranges that are appropriate for their organization. Organizations normally have a number of jobs within one salary range - for example, an organization may establish one salary range for all administrative jobs, one range for all specialist jobs, and one range for all director jobs. Consideration must also be given to the increase from one range to the next, and whether or not the ranges should overlap. Once again, market comparison is a useful tool in making these policy decisions.

Placement on salary range

Compensation policies will often establish criteria for employee placement on the salary range. Typical criteria include years of experience, years with the organization or in the position, and specific skill sets related to the position. Consideration should be given to how the organization wants to position new hires on the salary range relative to current employees.

Criteria for salary increases

In order to ensure fair and equitable compensation practices, organizations need to clearly establish, communicate and apply decision-making criteria for salary increases. Decisions on salary increases can be based on a number of factors, such as seniority, cost of living increases, or performance (merit) based. The trend in compensation is toward performance-based pay - organizations choosing to adopt performance based pay need to ensure that they have a clear performance management policy that is applied equitably throughout the organization.

Organizations may also implement re-earnable bonuses instead of salary increases. This compensation strategy serves to keep salaries and wages constant over time, however, may result in compensation below industry standards. A re-earnable bonus can be a useful tool to provide salary increases for employees who are at the top of the grid, without impacting the established salary range.

Salary review timing

Organizations need to establish regular time frames for salary review. Typically salary reviews are conducted annually, often in conjunction with performance reviews. (Best practice organizations hold separate meetings with employees for performance appraisal and salary review.)

Bonus and incentive pay

Bonus and incentive pay are not typical components of nonprofit compensation policies. However, bonus and incentive pay are considered best practice in other sectors and can be effective tools in motivating and retaining top talent, particularly at the director and executive director levels. As with base salary and salary increases, decision-making criteria should be established and communicated for awarding bonuses and incentive pay. Typically this type of compensation is tied to specific performance results against pre-set goals and objectives at the individual and organizational level. Results that are measured can be quantitative and qualitative, such as quality of service to clients, number of clients served, effectiveness of programs, etc. When establishing bonus schemes, organizations often apply a balanced scorecard approach: looking at financial, human resources and customer results. In the voluntary sector this balanced scorecard approach could translate into examining results of funding goals and objectives, budget management, employee and volunteer recruitment and retention targets, and program development and client service achievements.

Learn more about compensation practices

Sample policies

Compensation Policy - Community Foundation of Ottawa (PDF - 30KB)

  • Sets out the criteria for decision-making
  • Ties salary to performance expectations