Compensation Impacts Culture

Compensation Impacts CultureZoom inDownload PDF

Leadership and tone at the top are obvious corporate culture influencers. What might be less obvious is how decisions on compensation structure shape, steer and promote corporate culture.

Compensation committees are increasingly discussing how the compensation program can be used as a tool to promote the desired corporate culture. These discussions are rarely simple since most program features can be assets or liabilities to the organizational culture.

It is possible, however, to analyze how pay program elements explicitly or implicitly affect culture. The following four aspects of compensation design shed light on how one impacts the other:

When combined, companies may be able to mitigate the risk of a heavy emphasis on transparency causing a cutthroat culture by using a balanced linkage to team performance in addition to individual performance to promote camaraderie.

While it is true that compensation can drive culture, it is important to remember that culture can also drive compensation.

For instance, at companies where there is an existing culture of employee entitlement, boards and committees may experience pressure to increase compensation even in the face of low performance or to use discretion to adjust for lower-than-usual payouts. Because compensation and culture exert a force on one another, committees should periodically take stock of both the cultural climate and compensation programs in place to ensure that both are aligned with intentions and consider changes as needed.

Whether program features, including the ones above, function as assets or liabilities to company culture depends on how they are used by the company and how they are balanced with other facets of the program.

Katherine Barrall is a senior associate and Kathryn Neel is a managing director at Semler Brossy Consulting Group.