Our Compensation Objectives and Philosophy
We strive to recognize and reward individuals in a way that motivates them to maximize their contribution to the long-term success of Koch, consistent with Our Values.
One of the best ways to do this is to reward employees for their contribution to the company's results and value created, similar to how an entrepreneur is rewarded in the marketplace. We believe this approach helps us attract and retain contribution-motivated individuals and motivates them to be principled entrepreneurs.
Our Approach to Compensation is Different
We strive to reward each individual for their total contribution, so we cannot rely on formulas or algorithms.
A Principle-Based Approach
It is important to understand the principles that inform our approach to compensation. Without this knowledge, misapplications often occur. Here are some common misapplications (We Avoid...) and principles we strive to apply instead.
| Some Principles We Apply to Compensation Decisions... | We Avoid... |
|---|---|
| Respect: Treating people as individuals; we pay people, not positions. Total Compensation for Total Contribution: Aligning base pay, variable pay, and other incentives (total compensation) with individual contribution to team/business results, long-term value to Koch and PBM culture (total contribution). Stewardship and Compliance: We will always comply with applicable laws, agreements and contracts. Marginal Contribution: An application of marginal analysis where we assess an employee’s contribution compared to a “typical contributor” (someone performing at the median for a peer group in the market). Supervisor Responsibilities and Expectations: Supervisors are expected to recognize and reward value creation and communicate with each team member so they understand how they earned their compensation and can increase it by contributing more. |
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Understand It Better
Principles Used in Compensation - Unscripted
Listen to leaders describe some of the key principles used in making compensation decisions.
Supervisors and Compensation
A high-level overview of a supervisor's responsibilities for each team member's compensation.
Our Approach to Compensation is Different
We strive to reward each individual for their total contribution, so we cannot rely on formulas or algorithms.
What is Marginal Contribution?
This special application of marginal analysis helps us evaluate how an individual is contributing.
How are Compensation and RREs Connected?
An employee's RREs are one factor among many that help supervisors make good compensation recommendations.
Examples: Communicating Compensation
Supervisors should communicate with each team member so they can understand how they earned their compensation and how they can increase it by contributing more. Here are some examples.
- Rewarding Contributions
- Looking to the Future
- “When you started working on Project Everest, we were struggling to partner with vendors and the commercial team. You took a risk to slow down the project and focus on building those relationships—and it paid off. In the last six months, we moved fast and found new ways of doing things because of cross-team collaboration. That wouldn’t have happened without you, which is why you are receiving a bonus of…”
- “As you know, we usually do compensation reviews a few months from now, but you’re contributing in a way that deserves more pay and is sustainable, so I didn’t want to wait. Here are some specific reasons...”
- “Last week, we talked about what you did to earn your base pay increase. Today, I want to discuss what you can do going forward to contribute more—and earn more—while working toward your career goals. In the past, you’ve talked to me about possibly becoming a supervisor, so let’s talk about some possible opportunities…”
- “I know you were disappointed, but also not surprised, that you didn’t receive a pay increase. During your feedback summary discussion, we talked about the most important development area for you is to collaborate effectively to achieve mutually beneficial outcomes. Let’s discuss your ideas for what you can do differently going forward and how I can help or coach you...”
Additional Resources
Applying Principle Based Management: Our Approach to Compensation is a set of one-page guides that include:
- Some Key Principles
- Forms of Financial Incentives and Other Motivations
- Conducting a Compensation Review
- Using Market Data Effectively
While these resources were designed for supervisors and HR personnel, they can be useful for all employees to better understand our approach to compensation.
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How Does Compensation Relate to the Other Aspects of Employee Development?
In many ways, the compensation discussions you have with your supervisor are an extension of coaching and feedback summary discussions. Compensation discussions can also lead to a better understanding of what is motivating and meaningful to you, which can lead to revisiting your RREs and identifying opportunities for growth.
Effective compensation decisions start with you and your supervisor working together in all aspects of employee development.
Supervisors and Compensation
A high-level overview of a supervisor's responsibilities for each team member's compensation.