Compensation Planning Best Practices: What Every HR Team Should Know
Estimated Reading Time: 7 minutes
“We’ll let finance handle that!”
If you’ve ever said or heard that phrase in your HR role, you’re not alone. But when it comes to compensation planning, HR professionals must stop deferring to other departments.
HR may not have historically owned compensation strategy—but today, HR is uniquely positioned to lead it. Done right, compensation planning becomes a powerful tool for driving retention, motivation, and fairness.
Here are three compensation planning best practices that every HR team should adopt—along with actionable steps and real-world insight from years of consulting experience at MorganHR.
Why Compensation Planning Is an HR Responsibility
Many HR teams are expected to oversee payroll budgets but are rarely involved in the strategic decisions behind compensation. The result?
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Flat, uninspiring merit increases (like across-the-board 3% raises)
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Ineffective or demotivating bonus programs
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Title inflation and pay compression
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Employees leaving for more strategic offers elsewhere
MorganHR Insight: Compensation is one of the top drivers of employee morale—but HR teams often have the least training in it. That’s why we help HR leaders own the process with confidence. MorganHR is here to help you.
1. Start with a Compensation Philosophy
A compensation philosophy defines how and why you pay employees. It’s your “North Star.”
Examples:
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“We pay at market to remain competitive.”
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“We lead the market to attract top talent in high-demand roles.”
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“We reward tenure and long-term loyalty.”
Every pay decision—from merit increases to promotions—should tie back to this philosophy.
What we do at MorganHR:
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Interview stakeholders
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Identify strategic goals
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Align values with compensation decisions
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Deliver a project plan in 12 weeks, supported by a cross-functional team
Pro Tip: If your existing philosophy feels outdated or irrelevant, it probably is. Review it annually.
2. Build a Job Worth Hierarchy
Think of this as a job-based value ladder, not an org chart. It ranks roles based on:
Why it matters:
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Avoids paying based on the person (e.g., tenure or personality)
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Helps managers answer tough compensation questions
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Supports internal equity and combats title fraud
Real-world example: A “Manager” title with no direct reports or budget responsibility likely belongs in a lower grade than a “Specialist” role that oversees critical systems and makes high-level decisions.
Creating a job hierarchy takes time and expertise—but it’s essential for clarity and fairness.
3. Benchmark Jobs and Define Pay Ranges
Once your job worth hierarchy is in place, it’s time to match those roles to market benchmarks and build appropriate salary ranges.
At MorganHR, we create a position and range report, showing:
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Pay levels assigned to each role (e.g., Accountant = Level 15)
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Where each employee falls within those ranges
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Outliers with explanations (e.g., tenure, job change, new hire)
This final deliverable empowers HR teams to:
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Identify pay gaps or compression risks
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Plan salary adjustments with confidence
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Defend pay decisions with data
Why do compensation best practices matter?
Simply put, having these best practices in place when creating your compensation guidelines shows the health of your organization.
If you haven’t gone through this process, either yourself or with the help of an expert, you can get compression and inversion—new hires making more than tenured employees or making the same amount as their managers, etc., which leads to tension in the workplace and poor morale.
I suggest you review the compensation plan and philosophy of your organization annually for both current and new employees to ensure the payroll portion of your budget is accurate (and that you’re not digging yourself into a hole).
If you need help with any aspect of compensation—from identifying and clarifying your compensation philosophy, to benchmarking and alignment to compensation structure and manager compensation training—reach out to us at MorganHR!
Our team has helped many organizations achieve pay transparency, and we’ve seen positive culture changes as a result—and we can do the same for you! Get in touch with our team today to learn more.
