Compensation Key Terms
TCHRA PHR and SPHR Preparation Course
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Balance sheet- used to determine compensation and housing allowing for differentials
based on cost of living differences, currency exchange rate, etc. between home and host
country
Benchmark job- positions that are standard across industry and provide for “apples to
apples” comparisons for compensation
Broadbanding- combining several salary grades when setting up a pay structure. Pay
ranges are wider than normal to provide increased flexibility.
Call back pay- additional compensation when employees must return to work on the
same day
Compa ratio- a calculation reflecting position in salary range (pay rate divided by the
midpoint of the pay range). A 1.00 or 100% suggests the employee is paid at midpoint
Comparable worth- Concept that states that job using comparable skills, effort,
responsibility and working conditions filled primarily by women should have same
relative pay as men. Using factors such as decision making, education, experience and
other non market based factors to determine appropriate pay levels
Compensable factors- reflects key dimensions or factors perceived to add job value
within the organization
Consumer price index (CPI)- a measure evaluating the change in cost of goods and
services for the same geographic area over time
Cost of living adjustment (COLA)- a standard measure reflecting changes in the cost of
goods and services. Typically used in union environments
Deferred compensation- Compensation that is delayed until a later point in time.
Typically used for executives as a tax deferral and retention vehicle
Draw- advanced amounts of pay to be held against future commissions.
Dual ladder career progression- Providing alternative for career growth between a
management and technical track, recognizing that not all employees want to serve in a
management role
Equal Pay Act- Prohibits discrimination of pay based on protected class area. Expanded
under Lilly Ledbetter Fair Pay Act. Defenses include working conditions, shift
differential, performance, output, education and experience.
Emergency shift pay- extra pay when employees are called to work to handle emergency
or crisis situations.
Equity- some form of ownership within the organization. Examples include stock, stock
options, restricted stock
Exempt- Employees are “exempt” from overtime under the Fair Labor Standards Act if
they meet defined criteria
Expatriates- employees working outside of their home country
External Equity- paying competitive to the external labor market
Fair Labor Standards Act (FLSA)- Law regulating child labor, minimum wage and
overtime provisions. Employees are assumed to be eligible for overtime unless they
meet certain standards
Fair Pay Act- Lilly Ledbetter Fair Pay Act which prohibits paying persons differently for
the same position based on a protected class. Expands time frame for filing complaints
with each paycheck serving as a new act of discrimination
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Flat rate pay- provides a job with same rate of pay, regardless of performance or
seniority. Also known as single rate pay.
Frequency distribution- listing of grouped data points, from highest to lowest
General pay increase- pay raise given to all employees or class of employees based on
competitive market with no consideration of performance
Geographic pay differential- additional or reduced compensation based on employee
locations. Differentials are based on cost of living
Golden handcuffs- short and long term compensation programs designed to retain
executives
Golden parachute- severance packages typically for executives to ease offboarding or
handling of merger/acquisition activities.
Green circle- acceleration of normal pay increases for persons under minimum pay
levels
Hazard pay- additional compensation for working in difficult conditions such as risk,
hazardous conditions, handling toxic materials, etc.
Incentive pay- additional compensation for achieving certain pre-established goals
above and beyond normal duties
Independent contractor- workers not covered under the FLSA
Internal equity- perception of fairness within the organization regarding pay /
compensation conditions
Job classification- evaluation method that groups similar positions together
Line of sight- concept in which employees must be able to influence outcomes in
attaining goals
Long term incentive- plans covering multi year periods
Lump sum increase- a one time payment not integrated into base salary, may be a
performance bonus or a method to reward employees without increasing base pay and
compounding
Market pricing- using salary surveys to establish the competitive wage rates for certain
positions and determine market value
Mean- the arithmetic average of a sum of numbers
Median- the middle point in an array of numbers, also the 50th percentile with half of
the data points above this level and half below
Merit pay- individual performance is used as basis for pay increases
Minimum wage- the lowest legal amount of hourly pay that can be received based on
the higher of state or federal mandates. Currently at $7.25/hour at the federal level
Mode- the number that appears the most frequently in an array of numbers
Nonexempt- employees paid overtime after 40 hours in a work week under the FLSA
Nonqualified deferred compensation- compensation that is not immediately taxable.
Also it does not qualify under ERISA for tax exemption. Taxation occurs once the
individual receives the compensation or “property”.
On call pay- pay received by individuals who are on standby (not working) and must
respond within a designated time frame.
Overtime pay- additional compensation received after working supplemental hours on a
daily or weekly basis. Required for nonexempt employees under FLSA at 1.5x for hours
in excess of 40 in a pay week.
Paired comparison method- job ranking method in which each job is compared against
another in job evaluation
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Pay compression- occurs when there is a small difference in pay regardless of skills,
experience or seniority. Typically occurs when new hires are paid more than existing
employees based on market conditions or when first line supervises earn less than
subordinates due to overtime pay received by subordinates.
Pay grades- established pay ranges arranged in a hierarchical fashion generally
providing a minimum, midpoint and maximum
Performance based pay- employee performance is the basis the amount and timing of
pay increases.
Perquisites- supplemental benefits paid to executives and not available for other
employees. Examples might include first class air travel, company car, legal and
financial services, supplemental retirement programs, executive physicals, etc.
Person based pay- pay system in which individuals education, experience and other
characteristics are basis for pay
Phantom stock- used in family owned and privately held organizations in which a
program is devised to convert growth in revenue or company worth into a cash
equivalent.
Point factor method- a job evaluation method in which certain factors important to the
organization receive points. Factors might include competencies in problem solving,
accountability, decision making, knowledge, etc.
Portal to Portal Act- covered under the FLSA and governs pay for nonexempt travel time
Premium pay- paying above market rates to attract and retain top talent or difficult to
find skillsets
Prevailing wage- the market competitive wage rate established for a position in a
defined geographic area
Rabbi Trust- trust arrangement for nonqualified deferred compensation and segregated
benefits from employers general assets.
Red circle- freezing pay for employees above the maximum of their salary grade
Repatriation- returning employees to their home country
Restricted stock- stock grants which require an event to occur before issue such as time
vesting, performance achievement, etc.
Salary structure- a hierarchical listing of salary ranges for each position including
minimum, midpoints and maximum levels for each position
Sarbanes Oxley Act (SOX)- following the Enron, Tyco and Worldcom scandals, SOX
provides additional controls including CEO and CFO approving financial statements,
review to insure adequate financial controls, independent Board of Directors, mandate
of an ethics officer and a 1-800 ethics hotline, etc.
Service Contract Act- a requirement that contracts with the federal government pay
employees a minimum of the prevailing wage rate
Shift pay or shift differential- additional compensation to encourage employees to work
evenings or weekends
Short term incentive- additional compensation based on a time period of one year or
less.
Stock options- right to purchase company stock at predetermined price at some point in
future.
Total rewards- the concept of direct and indirect compensation such as base pay,
overtime, incentive pay, stock options, benefit programs including health care,
retirement, paid time off, training, etc as part of the total compensation package.
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Totalization agreements- agreements between countries to avoid double payment of
retirement program taxation such as social security
Travel pay- pay for nonexempt employees workers for the time spent traveling to an
assignment.
Underwater options- a stock option current market value is less than the options
exercise price
Unweighted average- raw average of data the gives equal weight to all factors.
Variable pay- Use of incentive pay, bonus, pay at risk, etc that may vary based on
organization performance or attainment of certain goals above and beyond day to day
work.
Weighted average- average of data that takes other factors such as the number of
incuments into account.
Work opportunity tax credit- a tax credit provided to employers hiring disadvantaged
employees such as physically or mentally disabled persons
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