Total Rewards

Incentive pay

Form of direct compensation where employers pay for performance beyond normal expectations to motivate higher performance.

Premiums

Payments in return for the achievement of specific, time-limited, targeted objectives.

External equity

Situation in which an organization’s compensation levels and benefits are similar to those of other organizations that are in the same labor market and compete for the same employees.

Red-circle rates

Situations in which employees’ pay is above the range maximum.

General pay increase

Pay increase given to employees based on local competitive market requirements; awarded regardless of employee performance.

Internal equity

Extent to which employees perceive that monetary and other rewards are distributed equitably, based on effort, skill and/or relevant outcomes.

Market-based job evaluation

Job evaluation method in which the relative worth and pay structure of different jobs are based on their market value or the going rate in the marketplace.

Performance-based pay

Situation where an individual’s performance on the job is the basis for the amount and timing of pay increases; also called merit pay or pay for performance.

Job classification

Job evaluation method in which descriptions are written for each class of jobs; individual jobs are then put into the grade that best matches their class description.

Compensation philosophy

Short but broad statement documenting an organization’s guiding principles and core values about employee compensation.

Domestic partners

Unmarried couples, of the same or opposite sex, who live together and seek economic and noneconomic benefits comparable to those granted to their married counterparts.

Total rewards

Direct and indirect remuneration approaches that employers use to attract, recognize, and retain workers.

Point-factor system

Job evaluation method that looks at compensable factors (such as skills and working conditions) that reflect how much a job adds value to the organization; points are assigned to each factor and then added to come up with an overall point value for the job.

Broadbanding

Combining several salary grades or job classifications with narrow pay ranges into one band with a wider salary spread.

Single-rate pay

Provides each incumbent of a job with the same rate of pay, regardless of performance or seniority; also known as flat-rate pay.

Compa-ratio

Pay rate divided by the midpoint of the pay range.

Job evaluation

Process of determining a job’s value and price for the purpose of attracting and retaining employees by comparing the job against other jobs within the organization or against similar jobs in competing organizations.

Total rewards strategy

Plan or method implemented by an organization that provides monetary, benefits-in-kind, and developmental rewards to employees who achieve specific business goals.

Green-circle rates

Situations in which an employee’s pay is below the minimum of the range.

Remuneration surveys

Instruments that collect information on prevailing market compensation and benefits practices (including starting wage rates, base pay, pay ranges, statutory and market cash payments, variable compensation, and paid time off).

Perquisites

Compensation provided on an individual basis in the form of goods or services.

Person-based pay

Pay systems in which employee characteristics, rather than the job, determine pay.

Productivity-based pay

Pay based on the quantity of work and outputs that can be accurately measured.

Benefits

Mandatory or voluntary payments or services provided to employees, typically covering retirement, health care, sick pay/disability, life insurance, and paid time off.

Job-content-based job evaluation

Job evaluation method in which the relative worth and pay structure of different jobs are based on an assessment of their content and their relationship to other jobs within the organization.

Job ranking

Job evaluation method that involves establishing a hierarchy of jobs from lowest to highest based on each job’s overall value to the organization.

Time-based step-rate pay

System in which pay is based on longevity in the job and pay increases occur on a pre-determined schedule.

Paired-comparison method

Job evaluation method in which each job is compared with every other job being evaluated; the job with the largest number of “greater than” rankings is the highest-ranked job, etc.

Pay for performance (P4P, PfP)

Situation where an individual’s performance on the job is the basis for the amount and timing of pay increases; also called merit pay or performance-based pay.

Pay compression

Occurs when there is only a small difference in pay between employees regardless of their experience, skills, level, or seniority; also known as salary compression.

Lump-sum increase (LSI)

One-time payment made to an employee.

Flat-rate pay

Provides each incumbent of a job with the same rate of pay, regardless of performance or seniority; also known as single-rate pay.

Compensation

All financial returns (beyond any tangible benefits payments or services), including salary and allowances.

Merit pay

Situation where an individual’s performance on the job is the basis for the amount and timing of pay increases; also called performance-based pay or pay for performance.

Pay ranges

Set the upper and lower bounds of possible compensation for individuals whose jobs fall within a pay grade.

Pay grades

Used to group jobs that have approximately the same relative internal or external worth and are paid at the same rate or within the same pay range.

Cost-of-living adjustment (COLA)

Pay adjustment given to eligible employees regardless of performance or organizational profitability; usually linked to inflation.