If you don’t know your compensation philosophy, it’s time to figure that out. A compensation philosophy is the guiding light for every choice you make about what you pay employees. There are three core philosophies: lagging the market, meeting the market, and leading the market.
You can learn more about each one of these in our guide to compensation philosophy.
In this guide, you’ll see what we’ve learned about compensation from some of the nation’s top companies. We chose these companies’ compensation philosophies as inspiration because they’ve driven long-term success, high growth, and a positive reputation.
Who doesn’t want that for their company?
We’ll share the big-picture things we learned from these companies. You’ll see specific examples of the tactical steps they’re taking to enact their comp philosophies.
Let’s get started! Here are the five things we learned about comp philosophy from 11 companies: Costco, Patagonia, Meta, Intuit, Salesforce, Adobe, Microsoft, FullContact, Airbnb, BambooHR, and Tripadvisor.
#1: No One is Getting Ahead by Paying Employees Less
It’s really never a good idea to lag the market. If you’re paying employees in the 25th percentile or less, you’re going to end up with problems. Low pay usually translates into low productivity and high turnover.
We saw strong statements in compensation philosophies about paying people well. The successful companies followed through on these promises.
Take Costco, for example. Popular for selling bulk groceries at low prices, this warehouse giant is going strong decades after its doors opened in 1983.
That’s because Costco’s compensation philosophy is to lead the market and treat employees well.
As of 2023, the company’s minimum wage is $17.50 an hour. No matter where a person starts out in the company, they’re guaranteed an hourly wage higher than any state hourly wage in the United States. It also provides healthcare for full and part-time employees, company-sponsored retirement, performance bonuses, and PTO.
But there’s more. According to its compensation philosophy, Costco wants employees to consider their job a career. Upward mobility is common and encouraged. About 70% of Costco’s salaried management team started as an hourly employee.
According to a Today article from 2021, the average employee has worked at Costco for 9 years and earns more than $25 an hour.
Because of its commitment to paying employees well, Costco spends less on recruiting, hiring, and training new employees than competitors like Sam’s Club, Walmart, and Target.
These competitors have bumped their minimum wage up in recent years, but Costco has the highest starting wage of them all.
Patagonia, a popular outerwear company, goes a step further. Its compensation philosophy outlines Patagonia’s commitment to paying a living wage, particularly for the people who actually make its clothing.
And yes, a living wage is usually higher than even the highest minimum wage.
A living wage, or the pay a person needs to afford decent housing, food, healthcare, water, transportation, and education, varies based on family size and location. In California, for example, the living wage for a single adult with no dependents is $21.24. This number jumps to $30.06 for a household with two working parents and two children.
Workers are becoming increasingly conscious of the need for a living wage. Almost no one can—or wants to—work for less than $15 an hour.
Long story short? If you can afford to lead the market like Costco and Patagonia, you’ll be more likely to hire and retain loyal employees. Our guide to creating a payroll budget can get you started on the right path.
#2. Well-Being Perks Are Becoming More Common
Companies have begun to realize how important it is for employees to enjoy a sense of well-being. No one can give a job their best effort if they feel consistently sick and stressed out.
Along with more employers offering affordable healthcare, we’re seeing extra well-being perks. Some companies offer their employees a weekly wellness hour. The employees are welcome to use the paid hour to take a walk, get some rest, or participate in a favorite hobby.
Others, like Meta, offer significant well-being perks, including:
- Autism coverage to pay for things like speech and occupational therapy
- A cancer care program to help people with cancer navigate their treatment
- Gender-affirming care
- Four months of paid parental leave
- Access to free therapy and mental health services
Software giant Intuit offers great wellness benefits too, like back-up care for children and adults you care for, menopause support, and legal insurance for events that could otherwise cost enormous amounts of money to resolve.
What changes can you make to help your employees enjoy a greater sense of well-being?
Starting with a weekly wellness hour for each employee won’t cost you much. Taking breaks during the workday boosts productivity, which means a small perk like this will be well worth the hour of “lost” work time.
#3. Fostering Pay Equity Requires a Lot of Legwork
Compensation philosophies put a lot of emphasis on creating pay equity. Many of the companies we reviewed wanted to achieve the letter and spirit of the laws surrounding fair pay. And all of them took significant steps to enact it in their organizations.
In Intuit’s compensation philosophy, the company states its commitment to continually analyzing its pay equity and providing the results for the public to see.
Salesforce, a leading CRM software, consciously evaluates pay disparities across gender, race, and ethnicity. It then works to close those gaps with increased pay, new policies, and other measures. Salesforce, along with a growing number of companies, created a job position (Chief Equality Officer) that focuses 100% on making sure the company reaches its DEI and pay equity goals.
HR software service BambooHR focuses on training interviewers to identify and eliminate internal biases, helping to promote inclusive hiring practices. All employees are given an equal opportunity to advance within the company through an internal job board with in-depth job descriptions.
All pay at BambooHr is based on a detailed compensation model with position grading and pay bands to make sure everyone has equitable earning potential.
Adobe is another example of a company putting in the work to provide fair pay. The company conducted a systematic, initial review of how it compensated employees across the globe. It made adjustments to attain pay equity.
Even better, Adobe continuously reviews its compensation strategy to make sure it’s keeping pace with the market.
#4. Diversity, Equity, and Inclusion Are High on the Priority List
More than ever before, companies are willing to be intentional about who they hire and elevate to high-level positions. A historically white male-dominated workforce is slowly becoming more diverse, equitable, and inclusive.
While this might not seem like part of a compensation philosophy, focusing on diversity, equity, and inclusion (DEI) is intricately connected to compensation.
You can’t say you’re committed to DEI but leave barriers in place that limit career growth access for certain people in your company.
If you hire people with disabilities but don’t go above and beyond ADA accommodations to make sure their work life is just as comfortable as it is for their peers, that’s going to directly affect their access to higher compensation.
Some companies are tackling this problem head-on.
Airbnb crafted a policy identifying where it will improve its diversity, equity, inclusion, and access (DEIA) and has committed to reporting on its progress. Tripadvisor did the same—and also created Employee Resource Groups where people from different marginalized groups can come together to build community and strengthen the company.
Microsoft is another positive example. In 2014, the company made a commitment to fostering a diverse and inclusive workforce. Each year since then, Microsoft has worked toward this goal by:
- Intentionally hiring women and marginalized people to higher positions within the company
- Collaborating with non-government organizations (NGOs), other companies, and lawmakers to make the world a more socially equitable place
- Providing gender-affirming and disability-inclusive care
- Evaluating diversity from the highest levels of the company all the way on down to the lowest
- Asking employees how included, valued, and accepted they feel in bi-annual surveys
- Providing more ways for employees to self-identify across race and ethnicity
- Exposing and closing pay gaps
Each year, Microsoft analyzes its own progress and publishes a detailed report. Even if that report doesn’t show explosive improvement in a certain area.
In the period from 2021 to 2022, for instance, the company’s Black and African American workforce rose by 46.3%. But its Native American and Alaska Native workforce only rose by 4.8% in the same timeframe.
The three key takeaways here are that Microsoft:
- Values diversity, inclusion, and equitable pay
- Actively works toward being a fully diverse and inclusive company
- Shares data about the whole process, proving a commitment to transparency
Microsoft does this legwork despite being a huge company with over 220,000 people in over 190 countries. Adobe does it too. If these large companies can do it, you can too.
#5. Companies Want Employees to Rest and Disconnect
Back in 2014, the privately held tech company, FullContact, made headlines for its unique approach to vacations. Instead of just offering a generous paid vacation policy, the company paid each of its employees $7,500 a year to use on a trip or staycation of their choice.
The caveat? The employees had to promise to avoid any form of work the entire time. No checking their work email. No texting or calling the office. No squeezing in an hour or two of remote work.
In a 2012 blog post explaining the concept, FullContact co-founder Bart Lorang emphasized the importance of completely disconnecting from work. He stated that his Paid, Paid Vacation Policy was in place to incentivize this complete break, allowing people to reap the benefits of a true vacation.
Ten years later, in 2022, FullContact verified that it still pays employees an extra lump sum to go on a fully disconnected vacation.
Whether they require employees to disconnect or not, more companies than ever are offering vacation stipends. And that’s on top of the regular compensation they’ll receive for the paid time off.
Airbnb offers $2,000 of credit toward its vast network of vacation rooms and homes. BambooHR gives employees a $2,000 yearly stipend to help pay for travel and accommodations. Tripadvisor reimburses employees for taking trips to other places.
For companies like FullContact, the extra cost really isn’t that big of a deal. It’s like paying a sign-on or performance bonus, only better. It actively rewards people for resting and recharging their batteries, which boosts retention.
It points to a compensation philosophy that not only meets or leads the market but also values a solid work-life balance.
What if you did something similar as part of your compensation philosophy?
We’re pretty sure that you’d lead the market in the way that’s starting to matter more and more—valuing employees as people with lives and interests outside of work.