Compensation Strategy

The Ultimate Guide to Creating a Compensation Plan

The Ultimate Guide to Creating a Compensation Plan
Assemble Content Team

Assemble Content Team

Published on

April 17, 2024

Helpful Templates included in this Guide


Building a comprehensive compensation plan and program is essential for any organization looking to attract, retain, and fairly compensate its workforce. A well-thought-out compensation plan enables companies to truly live their cultural values and achieve its strategic goals in company performance and talent growth. 

At Assemble, we’ve seen many varieties of compensation strategies and have helped many of our customers develop their own. Below, we’ll show you the steps required to develop a compensation program to make compensation a strategic advantage at your organization. We’ve also included links to templates and deep-dives for each topic. 

1. Define a Compensation Philosophy

A compensation philosophy is the cornerstone of a compensation plan. It should reflect the organization's mission, values, and strategic goals. 

At Assemble, we recommend building a compensation philosophy based around a core set of five values to ensure a high performing philosophy:

  • Fair across Departments, Ladders, and Positions
  • Equitable among employees — (i.e., avoid unwanted biases; effect equal pay for equal work)
  • Competitive against your market
  • Consistent with your policies and beliefs
  • Explainable (or Open or Transparent) to your people

This philosophy guides how an organization develops compensation bands for roles within the company, how competitive recruiters should be in the market, and what compensation mix (base salary, bonuses, equity, etc.) is offered. 

Your philosophy might prioritize market competitiveness, internal equity, performance, or a mix of these and other factors.

💡Want a deeper dive into building a Comp Philosophy? Check out our philosophy guide and templates here.

2. Develop a Job Architecture

A job architecture lays out the framework for grouping and organizing roles within your organization based on their department, ladder, and level (position). 

This architecture enables clarity around job roles, career paths, and progression criteria for employees. It also serves as the foundation for building a systematic compensation program as it allows market data to be mapped to create compensation bands aligned to each position. 

At Assemble, we see job architectures aligned to best practices resemble the following structure:

💡Tip: Make sure you build a global leveling framework for easier compensation benchmarking. Check out our deep-dive on job architectures.

3. Level/Map Employees Against It

Once a job architecture is in place, the next step is to map current employees against this structure (also known as “leveling”). 

This involves leveling positions based on their responsibilities, required qualifications, and contribution to the organization. It's crucial for ensuring that employees are classified correctly and fairly, facilitating a transparent and equitable compensation process.

🎯It’s common during this process to involve the functional leaders of a given department or ladder. This is important to ensure org-wide buyin to the job architecture, and that employees are being correctly assigned to a given position and compensation band.

4. Procure Market Benchmark Datasets

To maintain competitiveness and fairness, procure comprehensive market benchmark data that aligns with the job architecture. These datasets should include salary, bonus, equity, and total compensation relevant to the roles and levels within the organization. 

When procuring data, it’s important to think through the specifics of the benchmarks. Some core questions to ask are:

  • What locations are available?
    • How is location data obtained in the dataset (Adjustments or surveys?)
  • What industries underpin the benchmarks?
  • What valuations, employee headcounts, revenue, or other slices of the data are available?

💰Assemble provides real-time market data for technology companies in partnership with Carta. Learn more here 

5. Build Compensation Bands (Pay Bands)

Using market data, develop compensation bands for each role by mapping market data points to each position within the job architecture. Use a market data midpoint for each position, and develop minimum and maximum band points from the midpoint. Ensure that these bands are flexible enough to accommodate variations in experience, performance, and market fluctuations.

📐 Use our comp bands guide and template to get started building your bands

Here’s an example of what a fully developed job architecture and compensation bands could look like

6. Surface Insights, Identify Adjustments

Analyze the first iteration of compensation bands by looking at the bands themselves, and then how the organization’s employees compare.

When analyzing the bands, look for inconsistencies in the underlying market data. Some data sets do not provide a data point for every percentile, or for every role. In these instances, apply an assumption to round out the data, or map a new market data point to the given positions. Make sure these assumptions are applied consistently across the compensation bands.

Once the bands are smoothed out, it’s critical to compare current employees leveled to the job architecture to the bands. Analyze what percentage of employees are in and outside of the bands. Calculate the cost to move employees into bands by department, ladder, and level. Use these insights to adjust the bands to ensure they’re a strong fit for the organization.

See how Assemble helps identify band adjustments with Automated Insights & Analytics.

7. Gather Input and Approval from Key Stakeholders

After analyzing and adjusting the compensation bands, it’s important to engage cross-functional teams that have a vested interest in the bands. Engage leadership, recruiting, finance, and any other relevant stakeholders in reviewing and approving the proposed compensation bands. This collaborative approach ensures alignment with organizational objectives and budgetary constraints, and supports effective implementation.

8. Further Iterate and Tweak as Needed

Based on feedback from stakeholders and further analysis, further refine and adjust your compensation bands and job architecture as needed. This iterative process helps in fine-tuning your compensation program to better meet the needs of your organization and its employees. 

Some examples of changes Assemble sees after an initial model of compensation bands are targeting a new market data percentile, widening and narrowing of certain bands, and mapping positions to new market data points.

9. Publish

Once finalized, communicate the compensation bands, architecture, and underlying philosophy to the organization. Transparency in this process is key to building trust and understanding among employees, and supports effective recruitment and retention strategies.

Thinking about what level of compensation transparency is best for your org? Check out our overview of the Spectrum of Pay Transparency

10. Continually Check, Update at Least Annually

Regularly review and update your compensation program to ensure it remains competitive, fair, and aligned with your organizational goals. For industries that are fast-moving or for companies that struggle with hiring, retention, or affordability issues, consider revisiting your compensation program more frequently (semiannual or quarterly, as needed). Make sure to procure the latest market data and compare. 

By following these steps, you can develop a compensation program that not only supports your current workforce but also positions your organization attractively in the talent market.

Assemble helps People teams build, implement, and maintain compensation programs. Interested in learning more? Sign up here for a demo

Assemble Content Team

Assemble Content Team

Assemble is the world’s first compensation platform designed to empower your teams to attract, retain, and motivate top talent with fair and equitable pay.