Most teams start building their compensation philosophy backwards. They jump straight to market data before defining what they actually stand for.
If you’ve never built one before, start simple. The goal isn’t to craft perfect language, just get clear on what’s already true.
The best thing is, comp is important to everyone, so you can even tackle something like building your V1 asynchronously and I can almost guarantee you'll get the attention of your leadership team.
So start and share it with your leadership team. Ask the questions that reveal how pay decisions really get made.
For example:
How does our approach to pay support our business strategy?
Are we aiming to lead, match, or lag the market?
How do we reward performance and recognise team versus individual impact?
How do we handle pay differences across locations or roles?
How transparent are we willing to be about pay decisions?
Write down what’s actually happening, not what you wish was happening. That gives you your baseline, because you can’t shift what you can’t see.
From there, move from what we do to what will drive our success.
Start by identifying your critical talent segments (the groups that most heavily influence business outcomes).
In a SaaS startup, that might be engineers, product managers, or account executives.
For each segment, ask:
What do they value most: cash, equity, flexibility, or growth?
What’s our edge in attracting and keeping them?
How will we measure success: faster hiring, longer tenure, or stronger performance?
(hot tip: don't be afraid to speak to these 'personas' directly to get their insights)
Then test for alignment:
If you say you “lead the market” for engineers, do your offers prove it?
If you want to reward outcomes, do your incentives make that clear?
Your compensation philosophy should read like a decision guide, not a slogan.
It’s an important doc that helps managers explain pay, candidates understand offers, and employees see fairness in action
When you think about documenting your pay philosophy, where do you feel most stuck?