Compensation Dictionary
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.
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The ratio between the CEO’s total annual compensation and the median employee’s pay. Publiccompanies are required to disclose this figure in any annual report, proxy or information statement.
An agreement to pay a large sum and/or benefits to a company executive who is terminated fromhis position following a sale, merger, consolidation or acquisition of a company.
A special clause typically included in employment contracts, by which money already dispersedmust be paid back under certain conditions, possibly with added penalty.
The total cash and non-cash payments given to an employee in exchange for services performedand includes base pay, commissions, bonuses, benefits, stock options and other forms of non-cashbenefits.
Experts in the design and implementation of compensation plans, the creation of proper incentivesfor employees, and advising companies on compensation trends and the current pay rates forgiven job positions.
The CD&A is a required part of a company’s annual proxy statement that provides narrativedisclosure explaining all material elements of the company’s executive compensation objectivesand policies, and puts it into perspectives for shareholders.
Payments that are made to an employee at a later date after which the income was earned and,in most cases, includes a deferment of taxes on said income. Examples of deferred compensationinclude retirement plans, pensions, deferred savings and stock-option plans.
Extra compensation awarded solely at the employer’s discretion and is not expected by the employee. A form of variable pay in which the amount, timing, requirements, and announcement of the bonus are not disclosed ahead of time to avoid implying incentive, or that meeting certain goals will guarantee the bonus
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.
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.