A COMPILATION OF KEY COMPENSATION TERMS
In an effort to provide our readers with valuable resources, we have put together this dictionary of key compensation terms that will be helpful to anyone in the compensation field. Here you will find all the terms you need to know to have a good grasp on the language of compensation.
The Compensation Dictionary is also available as a PDF.
There are currently 5 names in this directory beginning with the letter E.
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EMPLOYEE STOCK OWNERSHIP PLAN (ESOP)
A benefit offered to employees that allows them to own stock in the company without havingto buy shares. The plan is funded by employer contributions that are held in a trust and aretax-deferred until the employee retires or leaves the company. Distributions are tied to vesting,meaning employees earn shares for each year of service and compliance with certain covenants.
EMPLOYEE STOCK PURCHASE PLAN (ESPP)
A program offered by a company which allows employees the option to purchase company sharesat a discounted price through after-tax payroll deductions and includes four phases: grant, offeringperiod, transfer and disposition. The grant phase grants employees the option to purchase stockat a predetermined cost. The offering period is the time during which the employee’s payrolldeductions accumulate for the future purchase of shares. Following the offering period, in thetransfer phase, the employer uses the money saved by the employee to purchase company sharesand transfers ownership of those shares to the employee. The disposition phase is when theemployee sells, trades, exchanges or transfers the shares.
EQUITY COMPENSATION PLAN
A form of non-cash pay an organization can offer its employees to encourage retention by allowingthem to partake in ownership of the company through various plans such as stock options,performance shares and restricted stock. Participating employees can share in the organization’sprofits through appreciation.
Beyond salary and cash compensation, these benefits provide an additional way to reward andretain key executives and employees. Examples include: 401k, SERPs, stock options, goldenparachutes, etc.
An employee exempt from the Fair Labor Standards Act (FLSA) regulations and therefore excludedfrom minimum wage and overtime requirements. Exempt employees are paid a yearly salary ratherthan an hourly wage.