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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A type of retirement plan in which employers make discretionary contributions based on quarterly or annual earnings, giving employees the opportunity to share in the profits of the company. Contributions are made only by the employer and are completely discretionary, meaning the company decides when and how much of its profits it wishes to share.
That which is consistent with the normal compensation for similar employees performing similarduties for similar companies under similar circumstances.
An employer’s effort to motivate employees by recognizing their achievements (length of service,exemplary one-time achievement, etc.) in the organization through methods of rewarding theseachievements (ex. written or spoken thank you notes, cash “spot” bonuses, gift cards, etc.).
Compensation to employees in the form of company shares that cannot be issued until certainrequirements have been met, such as years of service or achievement of performance goals.
Stock that is not fully transferrable until certain restrictions/conditions have been met. Uponsatisfaction of those restrictions, the stock becomes transferrable to the person. They are oftenused as a form of employee compensation, and can be settled in actual shares or cash.
A plan put in place with the purpose of retaining key employees in an organization by offeringcertain incentives to reduce turnover and ensure employees are motivated to stay with thecompany long-term. A good retention plan aligns with business performance goals to allow formaximum return on investment.
An arrangement whereby a certain number or percentage of shares are required to be retainedtoward the satisfaction of stock ownership guidelines.
An organized compensation structure that includes various pay grades with a maximum, a midpointand a minimum pay rate for a given job.
A type of bonus reward designed to recognize achievements, as they occur, for a specific project or task. Typically, spot awards are earned for special projects achieved over a short period of time.
A cash-settled long-term incentive given to an employee that is equivalent to the appreciation ofcompany stock over a specified period, so that the holder/employee benefits from an increase instock price.