Compensation and Benefits Policy Example

Table of Contents

    Compensation policy refers to a set of guidelines and principles established by an organization to determine how it will reward its employees for their work and contributions. It outlines the various components of compensation, such as salaries, bonuses, incentives, benefits, and other forms of remuneration. The policy is designed to ensure that the compensation offered aligns with the company’s overall goals and values, while also being competitive enough to attract and retain talented employees.

    The corporate mission of (Name of the organisation) is to be a world leader in (line of business of organisation). The policy aims to provide a framework to create, modify and maintain appropriate compensation and benefits programs and processes with adequate supervision and control.

    The ability to attract, retain, reward and motivate talented individuals is critical for achieving our strategic goals and long term success. A fair and transparent structure is what helps us to acquire and retain the talent pool critical to building competitive advantage and brand equity.
    In this section we have put forth the guidelines for compensating employees according to their employment status. It is our constant endeavor to ensure that we are compensating our employees in an equitable manner and in keeping with current market trends.
    Our compensation system takes into account factors like role, competency, experience, grade and availability of talent to differentiate/arrive at the PayScale of an individual. Our compensation policy also depends on the fact that our performance management system is a sound basis of assessing performance holistically.

    Compensation And Benefits Governance

    The board of directors along with the Human Resources team will oversee the design of the Compensation system and its operations effectively. The Human Resources department is charged with the responsibility of ensuring that the total compensation program is managed for consistency and equity.

    If you have any questions about (Name of the organisation) pay policy enlisted here please approach the Human Resources Department.

    (Name of the company) reserves the right to change, modify or delete the Provisions of this compensation and benefits policy without prior notice.

    Scope Of The Policy

    This Compensation Policy applies to all the executives and employees of (Name of the organisation)

    Definition Of Compensation And Benefits

    Compensation encompasses the entire range of salaries and benefits, both current and deferred, that employees receive during their employment with (Name of the company). In the Employment Cost Index, compensation includes the employer’s cost of salaries, plus the cost of providing employee benefits.

    Compensation Structure

    To meet the organisational objective of attracting, rewarding and retaining talent, compensation is delivered through a composition of methods as below

    • Annual Guaranteed Pay
    • Variable Pay
    • Long Term Pay
    • Non Cash Benefits

    Annual Guaranteed Pay

    Annual Guaranteed Pay includes basic salary and optional allowances as maybe available to eligible employees. Optional allowances include house rent allowance, medical allowance, conveyance allowance, leave travel allowance and others. It also includes retirals like superannuation allowance, statutory contributions such as Employer’s contribution to Provident Fund and Gratuity. The company shall endeavour to ensure that the annual guaranteed pay reflects the following

    • Job
    • Grade
    • Performance
    • Experience
    • Market pay position

    Variable Pay

    The quantum of variable pay is based on company and individual performance. Variable pay is given in the form of performance bonus or incentives as applicable. The design of the variable is linked to the individual employee’s performance rating which is arrived by assessing performance delivered against a set of predefined set of objectives.

    Incentive payouts are based on individual performance targets as maybe defined from time to time.


    The Company believes and understands that there are certain policies which are key in building goodwill for the organisation amongst the employees. Keeping this in mind, apart from cash components and perquisites, the organisation is committed to assist employees and their dependants to meet unforeseen and adverse life events both from the perspective of health and financial difficulty. The organisation offers assistance to tide over such life events through medical insurance and loans like Housing Loans, Personal Loans and Vehicle Loans at concessional rates as laid down by the company.


    The quantum of bonus will not exceed (percent)% of the total fixed pay in a year. If the variable pay exceeds (percent)% or more of the fixed pay, the payout will be (percent)% of the bonus upfront while the rest of the amount will be a deferred payout over the following (number of years).

    Guaranteed Bonus 

    A guaranteed bonus  is not consistent with pay for performance principles or remuneration plans of the Company. However, joining in or sign on amounts at the level of  (designation) and above will be limited to the first year only and will be in the form of  Employee Stock Options/Sign On Amount

    Severance Pay

    (Name of the Company) will not grant any severance pay other than accrued benefits (Gratuity, Pension) except in cases where it is mandatory by any statute and with the prior approval of the Board.

    Malus/Claw Back (Largely Applicable to Banking/Financial Organisations)

    Broadly, malus provisions apply before rewards or remuneration have vested or have been paid to an employee whilst claw back provisions apply to awards or remuneration that have already been vested. Malus and claw back options serve the function of aligning risk and individual reward for executives and allow companies to reduce and recoup awards in defined circumstances such as financial misstatement, gross negligence, misconduct or fraud.

    Long Term Pay

    At (Name of the organisation) we understand the need to encourage institution building among employees who are the backbone of the organisation.

    Long term pay maybe administered through employee stock options or deferred cash schemes. Long term pay serves the following

    • Enhance employee motivation
    • Enable employees to participate in the long term growth and financial success of the company
    • To act as a retention mechanism, enabling employees to become active stakeholders of the company.

    Employee Stock Option Plan (ESOP)

    ESOP is kept outside the employee compensation structure in keeping with the rules laid down for its issue. The allotment of ESOP would be dependant on the grade, performance, merit, length of service, future potential contribution, conduct of the employee and other such parameters

    Non Cash Benefits

    These benefits are provided to employees to supplement rewards and meet their non financial and other requirements and are linked to their level in the organisation

    Few examples of what could be covered are

    • Hospitalization insurance for employees and their dependents
    • Group term insurance for employees
    • Personal accident insurance for employees as applicable
    • Company car for employees above grade (grade)
    • Club membership for employees above grade (grade)

    Payroll Practices

    Employees salaries will be disbursed on the (date) of every month.  If the regular pay date falls on a Sunday/ holiday, the Company will attempt to make the disbursement on the previous working day otherwise on the first business day after the holiday.

    Salary Deductions And Withholding

    The Company will withhold the following from the employee’s pay cheque

    • Taxes
    • Insurance
    • Other Deductions

    Compensation Review

    Fitment of New Hires

    Pay ranges of the Company are set on the basis of academic and professional credentials of the incumbent and further on the specific job role and competency skill sets of the individual.

    There might be certain key profiles which might have to be hired at a premium and treated as an exception to the pay scales laid down. Any such deviations will need to be approved by the management while being accompanied with suitable justification.

    Increments/Pay Revision

    Increase in fixed pay will happen annually with effect from April 1 of every calendar year. However there could be some events such as promotions, confirmations  or change in job dimensions that could lead to changes in fixed pay during other times of the year. The organisation could also make salary corrections and adjustments during the year for those employees whose compensation is found to be below the market pay and who have a good track record with respect to performance. However these would be done on an exception basis with the express approval from the appropriate authority.

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