Glossary
 
Compensation - Glossary
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- A -
Across-the-board Increase: General increase amount given to all eligible employees; may be either a flat amount or a percentage of base rate, sometimes referred to as general increase.
Anniversary Date: (1) The date used in some merit-pay systems at which a review of the employee's salary occurs. It may be the anniversary of hiring, last pay increase, promotion or some other reference point.


- B -
Base wage rate (or base rate): The hourly rate or monthly salary paid for a job performed. Does not include shift differentials, benefits, overtime, incentive premiums, or any pay element other than the base rate.
Benchmark job: A standard job used to make pay comparisons, either within the organization or to comparable jobs outside the organization, to develop or validate a job-worth hierarchy. Pay data for these jobs are readily available in purchased surveys.
BFOQ: Bona Fide Occupational Qualifications – legally defensible minimum qualifications to perform the job.
Broadbanding: A pay strategy that consolidates a large number of relatively narrow pay grades into much fewer broad bands with relatively wide salary ranges, typically in the neighborhood of 100 percent or more.


- C -
Career ladder: A series of defined levels where the nature of work is similar and the levels represent the organization’s typical requirements for career growth. Parallel ladders and overlapping ladders are often created to allow transition from one field to another (e.g., from engineering to management). Also called career pathing.
Classification: Hierarchical structure of jobs arranged into classes or pay grades.
Classification method of job evaluation: Compares jobs on a “whole” job basis. Predefined class descriptions are established for each job and jobs are placed in whichever classification best describes them.
Closed ended questionnaire: A structured questionnaire used for job analysis that provides the incumbent with a written set of questions regarding job content that limits the responses to a predetermined set of answers. Questions are either behaviorally based or task based and require validation.
Compa-ratio: The ratio of an actual pay rate (numerator) to the midpoint or some other control point for the respective pay range (denominator). Compa-ratios are used primarily to compare an individual’s rate of pay to the mid-point or control point of the range. A compa-ratio may be calculated for an individual, a group of people, a department, or an entire organization.
Compensable factors: Elements of a job for which the organization is willing to pay. These are used to provide a basis for judging job value to create a job worth hierarchy (job evaluation). Factors are usually measured in degrees and are weighted, based on their pre-determined value to the organization. Typical factors include skills, effort, responsibility, scope of authority, and working conditions.
Compression: Pay differentials too small to be considered equitable. The term may apply to differences between (1) the pay of supervisors and subordinates, (2) the pay of experienced and newly hired incumbents of the same job, and (3) pay-range midpoints in successive job grades.
Control point: The point within a salary range representing the desired pay for a fully qualified, satisfactory (average) performer in a job or group of jobs at a given time (usually the midpoint of a salary range).
Cost-of-living adjustment (COLA): An across-the-board wage and salary increase or supplemental payment designed to bring pay in line with increases in the cost of living to maintain real purchasing power.


- D - 
Downgrading: The movement of a job to a lower level in a job-evaluation system (i.e., to a lower job grade and/or pay range within a pay structure).



- E -

Equity: When used in reference to direct pay this concept refers to a criterion of pay based on similar responsibilities and contribution to the organization. It may focus on the “fairness” of pay between employees within or outside the organization.

Exchange rate: Economically defined as the intersect of the labor demand and the labor supply functions in an external market. It constitutes the wage rate that employers are willing to pay and labor is willing to accept. From a compensation viewpoint, the exchange rate defines the criterion of external equity.

Extrinsic rewards: Work-related rewards that have value measurable in monetary terms, as opposed to intrinsic rewards, such as satisfaction in a job well done.



- F -

Factor comparison method: A job evaluation method in which a series of rankings are performed to assess which jobs contain more of each specific compensable factor than other jobs being evaluated The factor rankings of each job are assigned numerical values, weighted and then added together to determine the total job score.



- G -

Geographic differentials: Pay differences established for the same job based on variations in costs of living or costs of labor among two or more geographical areas.



- H -

Hiring rate: As a matter of wage policy, the beginning rate at which people typically are hired into a job.

Hourly rate: The rate of pay per hour for a job being performed. An “hourly” worker may be assigned to various rated jobs during any pay period and is paid the “rate” applicable to each job while working on it.



- I -
Incentive (pay plans): Pay plans designed to reward the accomplishment of specific results. Awards are usually tied to expected results identified at the beginning of the performance cycle. The plans can be individual, group, companywide, or a combination of any. Incentive plans are “forward” looking; bonus plans look “backward.”
Indirect pay: All forms of non-direct (i.e., non-cash) compensation made to employees in exchange for their contribution to an organization.
Intrinsic rewards: Rewards that are associated with the job itself, such as the opportunity to perform meaningful work, complete cycles of work, see finished products, experience variety, and receive feedback on work results.



- J -
Job: The total collection of tasks, duties, and responsibilities assigned to one or more positions which require work of the same nature and level.
Job Analysis: The systematic, formal study of the duties and responsibilities that comprise job content. The process seeks to obtain important and relevant information about the nature and level of the work performed and the specifications required for an incumbent to perform the job at a competent level.

Job Description: A summary of the most important features of a job, including the general nature of the work performed (duties and responsibilities) and level (i.e., skill, effort, responsibility and working conditions) of the work performed. It typically includes job specifications that include employee characteristics required for competent performance of the job. A job description should describe and focus on the job itself and not on any specific individual who might fill the job.
Job Evaluation: A formal process by which management creates a job worth hierarchy within an organization. The two basic approaches are the market data approach and the job content approach.
Job Family: A group of jobs having the same nature of work (e.g., engineering) but requiring different levels of skill, effort, responsibility, or working conditions (e.g., entry-level vs. senior engineer).
Job Grade: One of the classes, levels or groups into which jobs of the same or similar value are grouped for compensation purposes. Usually, all jobs in a grade have the same pay range. However, sometimes different jobs in the same pay grade have different pay ranges, due to market conditions for some of the jobs.
Job Specifications: A section of the job description that defines what worker characteristics (i.e., the knowledge, skills and abilities) are required to perform the job for it to be carried out competently. These characteristics must be bona fide occupational qualifications (BFOQs).
Job Worth Hierarchy: The perceived value of jobs in relationship to each other within an organization. The job worth hierarchy forms the basis for grouping similar jobs together and establishing salary ranges.


- K -
Knowledge-based pay: A system of salary differentiation based on the formal education, related experience or specialized training a professional employee has that qualifies the individual to deal with specific subject matter, or work effectively in a specific field. Salary level may not be dependent on whether the incumbent utilizes the knowledge.
KSA (Knowledge, skills, and abilities): Common job specifications. Knowledge refers to acquired information necessary to do the job (e.g., principles of nuclear physics). Skills refer to acquired measurable behaviors (e.g., autoclave operation). Abilities refers to natural talents or acquired dexterity (e.g., capacity to lift 200 pounds).


- L -
Labor Demand: The highest wage an employer is willing to pay for a given level of employment or number of employees.
Labor Market: A place where labor is exchanged for wages. These places are identified and defined by a combination of the following factors: (1) geography (i.e., local, regional, national, international), (2) industry, (3) education, licensing or certification and (4) function or occupation.
Lead or Lag Policy: Match, follow or exceed the market when adjusting pay structures.
Lump-sum Increase: Any increase in pay that is made in the form of a single cash payment. The most common form is the lump-sum merit.



- M -
Market Adjustment: The percentage increase to organization, group or individual pay that is necessary to adjust it to the estimated market level.
Market Pricing: The technique of creating a job-worth hierarchy based on the “going rate” for benchmark jobs in the labor market(s) relevant to the organization. Non-benchmark jobs are slotted into the structure based on whole job comparison.
Maturity Curve: A process of determining employees’ salaries as a function of years from the time of the first degree earned. Maturity curves are most commonly used for pricing jobs in lieu of relying on job evaluation techniques. The process assumes that years in the profession equate with more highly valued competencies.
Merit Increase: An increase to an individual’s base pay rate based on performance.
Merit Rating: A method for appraising the performance of an employee with respect to his or her job. It frequently serves as a basis for making pay adjustments, promotion decisions, or work reassignments.
Midpoint: The salary that represents the middle of a given salary range or pay grade.
Midpoint Progression: The difference in wage rates paid between two adjacent grades, usually defined as the difference in the midpoints of the two adjacent grades. A midpoint progression is calculated by taking the difference between two adjacent midpoints as a percentage of the lower of the midpoints.


- N -
Nonquantitative job evaluation: A method that creates job worth hierarchy based on the perceived value of the “whole job,” but does not utilize quantitative methods. Examples include classification, ranking, and slotting.


- O -
Occupation: Generalized job or family of jobs.
On-call Pay: A nominal amount of compensation provided in return for an employee being available to report to work at employer’s discretion. Because the employee is expected to be easily reachable and able to report to the work site on short notice, he or she is compensated for having restricted personal time.


- P -
Paired comparison: A ranking technique that compares each job being evaluated individually to every other job in a pair-wise fashion to determine which job has a higher value. Ranks of jobs are created which can than be pegged to the market via benchmark jobs.
Pay Adjustment: A general revision of pay raises. The adjustment may be either across-the-board, such as cost-of-living adjustments (COLA), or spot adjustments for increases in prevailing wage rates.
Pay Plan: A schedule of pay rates or ranges for each job in the classification plan. May include rules of administration and the benefit package.
Pay Policy Line: The level at which the organization decides to set its pay against the external market; usually the midpoint of the salary structure is set as an estimate of the market going rate.
Pay Range: The range of pay rates, from minimum to maximum, established for a pay grade or class. Typically used to set individual employee pay rates.
Pay Range Width: The width or spread of a pay range, measured by the ratio: Width = (maximum pay – minimum pay)/minimum pay.
Pay Range Overlap: The degree to which the pay ranges assigned to adjacent grades in a structure overlap. Numerically, the percentage of overlap between two adjacent pay ranges.
Pay Steps: Specified levels within a pay range. Employees may progress from step to step on the basis of time-in-grade.
Pay Survey: The gathering of data on wages and salaries paid by other employers for selected key classes of jobs or benchmark jobs.
Performance Appraisal: Any system of determining how well an individual employee has performed during a period of time, frequently used as a basis for determining merit increases.
Person-based Pay: Compensation programs that base an employee’s salary on that individual’s skills or knowledge rather than on the nature of a rigidly defined job. Types include skill-, knowledge-, and competency-based pay.
Piece Rate: A direct performance payment based on production by an individual worker. A payment is made for each piece or other quantity unit of work produced by an employee.
Position: The total of duties and responsibilities of a single employee. The total number of positions in an organization equals the number of employees plus vacancies. A job is typically made up of several positions that require the same duties at the same level.
Premium Pay: Extra pay, beyond the base wage rate, for work performed outside or beyond regularly scheduled work periods.
Promotion: The (re)assignment of an employee to a job in a higher grade or range in the organization’s job worth hierarchy. (See WAC 251-01-325)



- R -
Range Penetration: The level of an individual’s pay compared to the total pay range (rather than compared with midpoint, as in compa-ratio). Range penetration is calculated as:
RP = (Pay – Range Minimum)/(Range Maximum – Range Minimum).
Reclassification: The (re)assignment of a job to a higher or lower grade or range in the organization’s job worth hierarchy due to a job content (re)evaluation and/or significant change in the external labor market going rate for comparable jobs. (See WAC 251-01-355 - Reallocation)
Red Circle Rate: An individual pay rate that is above the established range maximum assigned to the job grade. Hence, the incumbent is usually not eligible for further base pay increases until the range maximum surpasses the individual pay rate.
Reliability: Refers to the reproducibility of results with any criterion or method. Also see validity.


- S -
Salary Structure: The structure of job grades and pay ranges established within an organization. The salary structure may be expressed in terms of job grades, job evaluation points or policy lines.
Scope: The set of quantifiable job characteristics that ascribe value to a job. Typical characteristics include number of subordinates, size of budget managed, and sales volume of the organization.
Shift Differentials (premiums): Extra pay allowances made to employees who work on a shift other than a regular day shift, if the shift is thought to represent a hardship, or if competitive organizations provide a similar premium. Shift differentials usually are expressed as a percentage or in cents per hour.
Single-rate System: A remuneration policy under which all employees in a given job are paid at the same rate instead of being placed in a pay range. Generally applies in situations where there is little room for variation in job performance or skill level.
Skill-based Pay: A person-based remuneration system based on the repertoire of jobs an employee can perform rather than the specific job that the employee may be doing at a particular time. Pay increases generally are associated with the addition and/or improvement of the skills of an individual employee, as opposed to better performance or seniority within the system.

Step Rates: Standard progression pay rates that are established within a pay range. Step rates usually are a function of time in grade and are often referred to as “automatic”. However, they can be variable or can be used in conjunction with merit programs.


- T -
Target Compa-ratio: The organization’s planned average (or total) salary for the organization, group or individual at year-end as a percent of the corresponding average (or total) midpoint.
Tiered Pay Plan: A remuneration system that differentiates salary based on time of hire (i.e., new employees are paid less than current employees for performing the same or similar jobs) as well as on nature of work performed.
Total Cash Compensation: The sum of all monetary payments made to an individual for services (i.e., employment) during a given year.
Total Remuneration: The sum of the financial and non-financial value to the employee of all the elements in the employment package (i.e., salary, incentives, benefits, perquisites, job satisfaction, organizational affiliation, status, etc.) and any other intrinsic or extrinsic rewards of the employment exchange that the employee values.


- U -
Upgrading: The advancement of a job to a higher grade or salary range.


- V -
Validity: How well a given criterion actually measures or predicts. Also see reliability.


- W -
Wage Differential: Differences in wage rates (for similar jobs) that can occur because of location of company, hours of work, working conditions, type of product manufactured, or a variety of other circumstances.
Wage Survey: A survey of a labor market to determine the going rates for benchmark jobs.