The Compensation Handbook

A State-of-the-Art Guide to Compensation, Strategy and Design

The most relied-on guide in the industry―now with strategic insight for using compensation strategies and practices to create competitive business advantage.

The Compensation Handbook has been a mainstay on the desks of human resources and compensation professionals for more than forty years―and now this revised Sixth Edition continues the tradition with new material and focus on developing a sustainable competitive advantage. The most important revision to date, this transformative edition will enable compensation and human resources practitioners to:

  • Provide a road map for creating a fully defined compensation strategy for any organization
  • Design and implement an approach for attracting and retaining talent that will remain relevant into the future
  • Present programs that allow for the seamless alignment of historic best practices with the latest tools, methods, and diagnostics in compensation

Much of this guide’s longtime success comes from the extraordinary team of highly respected experts from business and academia who share their authoritative knowledge on every aspect of compensation, and this latest edition features more than two dozen new contributors leading the field in their specialties. From using “big data” to solidify compensation decisions to building compensation programs that adapt to rapidly changing business and workforce scenarios to executing successful plays for new talent, retaining essential staffers, and encouraging skill development―The Compensation Handbook, Sixth Edition continues to be a groundbreaking tool that forward-thinking compensation professionals and HR practitioners can use to substantially add value to their companies today and in the future.

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​The Compensation Handbook has been recognized as the most authoritative reference book in the field of compensation for over 40 years. The secret of the book's success has been:

  • Identifying the most significant issues impacting compensation and human resources practitioners.
  • Providing the best straightforward, comprehensive, and understandable solutions to deal with issues.
  • Utilizing respected and prestigious leaders in the field to provide solutions.
  • Putting forward unique and innovative approaches not found elsewhere.
  • Building on the strong knowledge foundation of past editions.

Each edition of this book has its own novel structure. The first three editions focused on the evolution of new compensation techniques and methodologies as they apply to the business and social environment of their era. The fourth edition was based on a framework of compensation diagnostics. The fifth edition shown compensation and human resources professionals how to use reward systems to address a dramatically changing set of capital issues arising from changes in business economics, workforce demographics, and employee culture.

  • The sixth edition helps practitioners use compensation programs to address five strategic human capital issues:
  • Creating and maintaining a culture of innovation, engagement, leadership, and performance.
  • Employing novel ways to win the battle for external talent, retaining internal talent, and develop mission-critical competencies.
  • Using "big data" to make compensation decisions that lead to greater business success.
  • Implementing total compensation programs that adapt to rapidly changing business and workforce scenarios.
  • Creating compensation programs that create competitive business advantage.

The sixth edition has all new, updated, or revised chapters. Each one links to one or more specified human capital issues cited above. It also ensures that compensation and human resources professionals will continue to utilize the best historical and new compensation tools, methods, and diagnostics to align their programs with the key issues. In the sixth edition, we have added an entirely new section devoted to the role and use "big data" in the compensation practice.

Thanks to the contributions of 63 compensation professionals, 26 of whom are new authors to ​The Compensation Handbook, this edition contains new, updated, or revised chapters. As we did for the fifth edition, we again dedicate this book with appreciation and affection to Milton L. Rock, consummate compensation and business guru, whose vision spearheaded the first three editions ​The Compensation Handbook.

The sixth edition is also dedicated to the children and grandchild of the editors: Adam and Alejandra Gimenez Berger; Craig and Alexandra Block Berger; Nancy Berger; and Cheryl, Steve, and Hailey Rose McGuire.

- Lance A. Berger and Dorothy R. Berger

Compensation Handbook Sixth Edition Contributors

Linda E. Amuso, President, Radford, an Aon Hewitt Company, San Francisco, California (Chapter 15)

Michael Armstrong, Founder, Limited, Cheshire, United Kingdom (Chapters 8, 10)

Dorothy R. Berger, Partner, Lance A. Berger & Associates, Ltd., Bryn Mawr, Pennsylvania (Chapter 4)

Lance A. Berger, Managing Partner, Lance A. Berger & Associates, Ltd., Bryn Mawr, Pennsylvania (Chapters 1, 46)

Jordan Blue, Senior Associate, Mercer, San Francisco, California (Chapter 44)

Mark Graham Brown, President, Mark Graham Brown & Associates, Manhattan Beach, California (Chapter 34)

Tim Brown, Partner, Radford, an Aon Hewitt Company, San Jose, California (Chapter 11)

Seymour Burchman, Managing Director Semler Brossy Consulting Group, LLC, Los Angeles, California (Chapter 26)

Ben Burney, Senior Advisor, Exequity LLP, Libertyville, Illinois (Chapter 22)

Ted Buyniski, Partner, Radford, an Aon Hewitt Company, Framingham, Massachusetts (Chapter 21)

Mark Cannon, Associate Professor of Leadership and Organizational Studies Peabody Peabody College, Vanderbilt University, Nashville, Tennessee (Chapter 36)

Jerome A. Colletti, Colletti-Fiss, LLC, Scottsdale, Arizona (Chapter17)

Paul Davis, M.L.I.R, Scanlon Steward and Advocate,, Lansing, Michigan (Chapter 20)

Bruce R. Ellig, Noted Compensation Specialist and Author, New York, New York (Chapter 29)

Christian M. Ellis, Enterprise Effectiveness Consultant, Speaker, Author, and Adjunct Faculty Member, University of St. Thomas Opus College of Business, Minneapolis/St. Paul, Minnesota (Chapter 35)

Charles H. Fay, Professor of Human Resources, Rutgers the State University of New Jersey, Piscataway, New Jersey (Chapter 32)

Mary S. Fiss, Colletti-Fiss, LLC, Scottsdale, Arizona (Chapter 17)

Iain Fitzpatrick, Vice President and Global Pay Leader Productized Services, Hay Group, Philadelphia, Pennsylvania (Chapter 12)

Monica Franco-Santos, Ph.D., Cranfield School of Management, Cranfield University, Bedford, United Kingdom (Chapter 19)

Bill Gentry, Managing Director, Grant Thornton LLP, Dallas, Texas (Chapter 22)

Luis R. Gomez-Mejia, Ph.D., Ray and Milann Siegfried Professor of Management, Medoza College of Business, Notre Dame, Indiana (Chapter 19)

Steven E. Gross, Senior Partner, Mercer, Philadelphia, Pennsylvania (Chapter 2)

Dick Grote, President, Grote Consulting Corporation, Frisco, Texas (Chapter 37)

Ed Hannibal, Partner, Mercer, Chicago, Illinois (Chapter 44)

Myrna Hellerman, Senior Vice President, Sibson Consulting, Chicago, Illinois (Chapters 9, 25)

Mykkah Herner, Manager of Professional Services, PayScale, Inc., Seattle, Washington (Chapter 51)

Roger Herod, SPHR, Principal, Mercer, Chicago, Illinois (Chapter 43)

Sue Holloway, CCP, CECP, Associate Director, Practice Leadership, WorldatWork, Scottsdale, Arizona (Chapter 5)

Blair Jones, CBP, CCP, CECP, GRP, Managing Director, Semler Brossy Consulting Group, LLC, Los Angeles, California (Chapter 26)

James Kochanski, Senior Vice President, Sibson Consulting, Raleigh, North Carolina (Chapter 9)

Molly A. Kyle, Consultant, Arthur J. Gallagher & Co.’s Human Resources & Compensation Consulting Practice, New York, New York (Chapters 31, 38)

Gerald E. Ledford, Jr., Senior Research Scientist, Center for Effective Organizations, University of Southern California, Los Angeles, California (Chapter 13)

Kathleen M. Lingle, Architect of Change, Scottsdale, Arizona (Chapter 41)

Joseph J. Martocchio, Ph.D., Professor, University of Illinois at Urbana-Champaign, School of Labor and Employment Relations, Champaign, Illinois (Chapter 6)

Nora McCord, Managing Director, Steven Hall & Partners, New York, New York (Chapter 28)

Tom McMullen, Vice President and North American Reward Practice Leader, Hay Group, Chicago, Illinois (Chapter 12)

Yvonne McNulty, Ph.D., Associate Faculty, Singapore Institute of Management University, Singapore (Chapter 45)

Brian Moore, CCP, CSCP, Market and Customer Research, WorldatWork, Scottsdale, Arizona (Chapter 5)

Erin C. Packwood, Principal, Mercer, Houston, Texas (Chapter 16)

Jane Park, Vice President, Meyer & Partners, New York (Chapter 27)

Andrea S. Rattner, Partner, Proskauer Rose LLP, New York, New York (Chapter 24)

James F. Reda, Managing Director, Arthur J. Gallagher & Co.’s Human Resources & Compensation Consulting Practice, New York, New York (Chapters 31, 38)

Deborah Rees, BSc, FCIPD, Director of Consulting, Innecto Reward Consulting, Wiltshire, United Kingdom (Chapter 39)

Robert H. Rock, President, MLR Holdings LLC, Philadelphia, Pennsylvania (Chapter 30)

Mandy Rook, Principal, Mercer, Philadelphia, Pennsylvania

Andrew S. Rosen, Principal, Compensation Leader, Buck Consultants, Berwyn, Pennsylvania (Chapter 7)

Mark A. Royal, Senior Principal, Hay Group, Chicago, Illinois (Chapter 40)

John A. Rubino, President, Rubino Consulting Services, Pound Ridge, New York (Chapter 42)

Rebecca Sandberg, Director of Consulting Services, SalesGlobe, Atlanta, Georgia (Chapter 18)

Ezra Schneier, Corporate Development Officer, HRsoft, Inc., Philadelphia, Pennsylvania (Chapter 49)

Dow Scott, Ph.D., Professor of Human Resources, Loyola University, Chicago, Illinois (Chapter 20)

Ilene Siscovick, Partner, Mercer, Seattle, Washington (Chapter 44) "

Mel J. Stark, Vice President, Hay Group, Jersey City, New Jersey (Chapter 40)

Yelena Stiles, Senior Consultant, Sibson Consulting, Princeton, New Jersey (Chapter 25)

David Swinford, President & CEO, Pearl Meyer & Partners, Rochester, New York (Chapter 27)

Paul Thompson, Founder, Limited, Cheshire, United Kingdom (Chapter 10)

David B. Turetsky, Vice President, Talent Management Consulting, ADP Strategic Advisory Services, Marlborough, Massachusetts (Chapter 48)

Frank P. VanderPloeg Esq., Partner, Employee Benefits and Executive Compensation, Dentons US, LLP, Chicago, Illinois (Chapter 23)

Melissa Van Dyke, President, The Incentive Research Foundation, St. Louis, Missouri (Chapter 14)

Carrie Ward, Director of Consulting Services, SalesGlobe, Atlanta, Georgia (Chapter 18)

Dan Weber, SPHR-CA, SHRM-SCP, Director, Radford, an Aon Hewitt Company, San Francisco, California (Chapter 47)

Thomas B. Wilson, President and CEO, Wilson Group, Concord, Massachusetts (Chapter 3)

Martin G. Wolf, Ph.D, Compensation Specialist, Jalisco, Mexico (Chapters 33, 50)


Part I:


Chapter 1

The State of the Compensation Practice
Lance A. Berger

Chapter 2

Using a Total Rewards Strategy to Achieve Competitive Advantage
Steven E. Gross and Mandy Rook

Chapter 3

Aligning Total Compensation Programs with Organization Values and Strategy
Thomas B. Wilson

Chapter 4

Winning Compensation Strategies for Organizational Sustainability
Dorothy R. Berger

Chapter 5

Excelling as a Compensation Professional
Brian Moore and Sue Holloway

Chapter 6

Emerging Compensation Issues
Joseph J. Martocchio

Part II:

Base Salary

Chapter 7

Positioning Salary Structures within the Total Rewards Context
Andrew S. Rosen

Chapter 8

Selecting and Developing a Salary Structure
Michael Armstrong

Chapter 9

Making Merit Pay and Bonuses Matter
Myrna Hellerman and James Kochanski

Chapter 10

The Purpose and Nature of Job Evaluation
Michael Armstrong and Paul Thompson

Chapter 11

Optimizing the Use of Salary Surveys
Tim Brown

Chapter 12

The Rationale for and Approaches to Benchmarking
Tom McMullen and Iain Fitzpatrick

Chapter 13

Paying for Skills, Knowledge, and Competencies
Gerald E. Ledford, Jr., Ph.D.

Chapter 14

Using Nonmonetary Awards to Support Behaviors that Drive Business Results
Melissa Van Dyke

Part III:

Variable Compensation

Chapter 15

Choosing the Incentive Compensation Program that Best Promotes Performance
Linda E. Amuso

Chapter 16

Designing and Implementing Effective Variable Pay Programs
Erin C. Packwood

Chapter 17

Aligning Sales Compensation Plan Design with Talent Retention Strategy
Jerome A. Colletti and Mary S. Fiss

Chapter 18

Developing and Applying a ROI Methodology to Drive Sales Force Performance
Rebecca Sandberg and Carrie Ward

Chapter 19

Creating a Culture of Collaboration, Innovation, and Performance through Team-Based Incentives
Luis R. Gomez-Mejia, Ph.D. and Monica Franco-Santos, Ph.D.

Chapter 20

Revolutionizing Workplace Culture through Scanlon Gainsharing
Dow Scott, Ph.D. and Paul Davis

Part IV:

Executive Compensation

Chapter 21

Formulating and Implementing an Executive Compensation Strategy
Ted Buyniski

Chapter 22

Designing and Executing Long-Term Incentive Plans
Ben Burney and Bill Gentry

Chapter 23

Regulating Executive Compensation
Frank P. VanderPloeg Esq.

Chapter 24

Formulating Executive Employment Agreements
Andrea S. Rattner

Chapter 25

Cracking the Secret Code of Long-Term Incentives in Private Companies
Myrna Hellerman and Yelena Stiles

Part V:

Compensation and the Board

Chapter 26

The Compensation Committee and Executive Pay
Seymour Burchman and Blair Jones

Chapter 27

Dynamics of CEO Pay
David Swinford and Jane Park

Chapter 28

Board Compensation
Nora McCord

Chapter 29

Structuring Board and Executive Pay
Bruce R. Ellig

Chapter 30

Structuring the Compensation Committee of the Board
Robert H. Rock

Chapter 31

Creating an Effective CEO Succession Planning Process
James F. Reda and Molly A. Kyle

Part VI:

Performance and Compensation

Chapter 32

A Framework for Designing a Performance Management
Charles H. Fay

Chapter 33

Choosing a Performance Appraisal System
Martin G. Wolf, Ph.D.

Chapter 34

Linking Compensation to Competitive Business Value
Mark Graham Brown

Chapter 35

Using Financial Rewards to Drive Productivity
Christian M. Ellis

Chapter 36

New Developments and Issues in Pay-for-Performance
Mark D. Cannon, Ph. D.

Chapter 37

Making Calibration an Integral Part of a Performance Appraisal System
Dick Grote

Chapter 38

Guidelines for Effective Executive Performance Appraisals
James F. Reda and Molly A. Kyle

Part VII:

Talent Management and Compensation

Chapter 39

Employing Novel Ways to Use Compensation to Win the Talent Wars
Deborah Rees

Chapter 40

Strengthening the Link between Compensation and Return on Investment
Mel Stark and Mark Royal

Chapter 41

Incorporating Work-Life Effectiveness into a Total Rewards Strategy
Kathleen M. Lingle

Chapter 42

A Methodology for Effectively Communicating Compensation Programs
John A. Rubino

Part VIII:

Global Compensation

Chapter 43

Critical Expatriate Compensation Issues and Practices
Roger Herod

Chapter 44

Global Local National Compensation Issues and Practices
Jordan Blue, Ed Hannibal and Ilene Siscovick

Chapter 45

Employing Novel Compensation Approaches to Compete for Expatriate Talent
Yvonne McNulty, Ph.D.

Part IX:

Big Data

Chapter 46

Guide to Realizing the Value of Big Data
Lance A. Berger

Chapter 47

Using Workforce Analytics to Make Effective Compensation Decisions
Dan Weber

Chapter 48

Making Better Compensation Decisions in the Age of Big Data
David B Turetsky

Chapter 49

Using Big Data to Enhance the Value of Compensation Programs
Ezra Schneier

Chapter 50

Turning Data into Compensation Information
Martin G. Wolf, Ph.D

Chapter 51

Exploring New Technologies that Enhance Compensation Programs
Mykkah Herner