Compensation:
Total of all rewards provided to employees in return for their services.
Direct financial compensation:
Pay that a person receives in the form of wages, salary, bonuses, and commissions.
Indirect financial compensation (employee benefits):
All financial rewards that are not included in direct financial compensation.
Nonfinancial compensation
Satisfaction that a person receives from the job itself or from the psychological and/or physical environment in which the person works.
Base pay:
The monetary compensation employees earn on a regular basis for performing their jobs. Hourly pay and salary are the main forms of base pay.
Hourly pay (wage):
One type of base pay. Employees earn hourly pay for each hour worked.
Salary:
One type of base pay. Employees earn salaries for performing their jobs, regardless of the actual number of hours worked. Companies generally measure salary on an annual basis.
Cost-of-living allowance (COLA):
Escalator clause in a labor agreement that automatically increases wages as the U.S. Bureau of Labor Statistics' cost-of-living index rises.
Real hourly compensation:
Measure of the purchasing power of a dollar
Nominal hourly compensation:
The face value of a dollar
Seniority:
Length of time an employee has been associated with the company, division, department, or job
Seniority pay:
Pay program in which pay increases are based on length of service.
Human capital theory:
A theory premised on the idea that employees' knowledge and skills generate productive capital known as human capital. Employees can develop knowledge and skills from formal education or on-the-job experiences.
Human capital:
As defined by economists, refers to sets of collective skills, knowledge, and ability that employees can apply to create economic value for their employers.
General Schedule
Classification of federal government jobs into 15 classifications (GS-1 through GS-15), based on such factors as skill, education, and experience levels. In addition, jobs that require high levels of specialized education (e.g., a physicist), significantl
Merit pay:
Pay increase added to employees' base pay based on their level of performance.
Merit bonuses:
One-time annual financial award based on productivity that is not added to base pay.
Spot bonus:
Relatively small monetary gift provided employees for outstanding work or effort during a reasonably short period of time.
Incentive pay:
Compensation, other than base wages or salaries, that fluctuates according to employees' attainment of some standard (e.g., a pre-established formula, individual or group goals, or company earnings).
Piecework:
Incentive pay plan in which employees are paid for each unit they produce.
Management incentive plans:
Bonuses to managers who meet or exceed objectives based on sales, profit, production, or other measures for their division, department, or unit
Behavioral encouragement plans
Individual incentive pay plans that reward employees for specific such behavioral accomplishments as good attendance.
Referral plans:
Individual incentive pay plans for rewarding the referral of new customers or recruiting successful job applicants
Gain sharing:
Plans designed to bind employees to the firm's productivity and provide an incentive payment based on improved company performance.
Scanlon plan:
Gain sharing plan that provides a financial reward to employees for savings in labor costs resulting from their suggestions.
Profit sharing:
Compensation plans that result in the distribution of a predetermined percentage of the firm's profits to employees.
Vesting:
An employee's acquired nonforfeitable rights to pension benefit.
Employee stock plans:
The right to purchase shares of company stock.
Company stock:
The total equity or worth of the company
Company stock shares:
Equity segments of equal value, which increase with the number of stock shares held.
Stock options
An employee's right to purchase company stock.
Employee stock option plans (ESOPs):
Plan in which a firm contributes stock shares to a trust, which then allocates the stock to participating employee accounts according to employee earnings.
Stock compensation plans
Companywide incentive plans that grant employees the right to purchase shares of company stock.
Deferred compensation
An agreement between an employee and a company to render payments to an employee at a future date.
Job-based pay:
Employee compensation for jobs employees currently perform.
Person-focused pay:
Compensation for developing the flexibility, knowledge, and skills to effectively perform a number of jobs effectively.
Skill-based pay:
System that compensates employees for their job-related skills and knowledge, not for their job titles.
Competency-based pay:
Compensation plan that rewards employees for the capabilities they attain.
Labor market
Potential employees located within the geographic area from which employees are recruited.
Spillover effect
Nonunion companies' offer of similar compensation unionized companies with the goal of reducing the likelihood that nonunion workforces will seek union representation
Interindustry wage or compensation differentials:
Pattern of pay and benefits associated with characteristics of industries.
Exempt employees
Employees categorized as executive, administrative, professional, or outside salespersons.
Nonexempt employees:
Employees not categorized as executive, administrative, professional, or outside salespersons, and required to receive overtime pay for work beyond the completion of standard work hours.
Job structure:
An ordered set of similar jobs based on worth
Job evaluation
Process that determines the relative value of one job in relation to another.
Job evaluation ranking method:
Job evaluation method in which the raters examine the description of each job being evaluated and arrange the jobs in order according to their value to the company.
Classification method:
Job evaluation method in which classes or grades are defined to describe a group of jobs.
Factor comparison method:
Job evaluation method that assumes there are five universal factors consisting of mental requirements, skills, physical requirements, responsibilities, and working conditions; the evaluator makes decisions on these factors independently.
Point method:
Job evaluation method where the raters assign numerical values to specific job factors, such as knowledge required, and the sum of these values provides a quantitative assessment of a job's relative worth.
Compensation policy:
Policies that provide general guidelines for making compensation decisions.
Pay level compensation policies:
Determine whether the company will be a pay leader (market lead), a pay follower (market lag), or assume an average position (market match) in the labor market.
Market lead policies:
Pay policy that distinguishes companies from the competition by compensating employees more highly than most competitors. Leading the market denotes pay levels above the market pay line.
Market match policies:
Average pay that most employers provide for a similar job in a particular area or industry.
Market lag policies:
Pay policy that distinguishes companies from the competition by compensating employees less than most competitors. Lagging the market indicates that pay levels fall below the market pay line.
Pay mix compensation policies:
Combination of direct (core compensation) and indirect financial compensation (employee benefits) components that make up an employee's total compensation package.
Pay structures:
Pay rate differences for jobs of unequal worth and the framework for recognizing differences in employee contributions.
Compensation survey:
A means of obtaining data regarding what other firms are paying for specific jobs or job classes within a given labor market.
Pay grade:
Grouping of similar jobs to simplify pricing jobs.
Wage curve:
Fitting of plotted points on a curve to create a smooth progression between pay grades (also known as the pay curve).
Pay range:
Minimum and maximum pay rate with enough variance between the two to allow for a significant pay difference.
Broadbanding:
Compensation technique that collapses many pay grades (salary grades) into a few wide bands to improve organizational effectiveness
Two-tier wage systems
A wage structure where newly hired workers are paid less than current employees for performing the same or similar jobs.
Salary compression:
Situation that occurs when less experienced employees are paid as much or more than employees who have been with the organization a long time due to a gradual increase in starting salaries and limited salary adjustments for long-term employees.
Perquisites (perks):
Special benefits provided by a firm to key executives to give them something extra.
Say on pay:
Provision that gives shareholders in all but the smallest companies an advisory vote on executive pay.
Golden parachute contract:
Perquisite that protects executives in the event that another company acquires their firm or if the executive is forced to leave the firm for other reasons.
Clawback policy:
Allows the company to recover compensation if subsequent review indicates that payments were not calculated accurately or performance goals were not met.