25 Common Compensation, Salary, and Wage Definitions

“Job Descriptions A critical component of both compensation and selection systems, job descriptions define in writing the responsibilities, requirements, functions, duties, location, environment, conditions, and other aspects of jobs. Descriptions may be developed for jobs individually or for entire job families.
Job Analysis The process of analyzing jobs from which job descriptions are developed. Job analysis techniques include the use of interviews, questionnaires, and observation.
Job Evaluation A system for comparing jobs for the purpose of determining appropriate compensation levels for individual jobs or job elements. There are four main techniques: Ranking, Classification, Factor Comparison, and Point Method.
Pay Structures Useful for standardizing compensation practices. Most pay structures include several grades with each grade containing a minimum salary/wage and either step increments or grade range. Step increments are common with union positions where the pay for each job is pre-determined through collective bargaining.
Salary Surveys Collections of salary and market data. May include average salaries, inflation indicators, cost of living indicators, salary budget averages. Companies may purchase results of surveys conducted by survey vendors or may conduct their own salary surveys. When purchasing the results of salary surveys conducted by other vendors, note that surveys may be conducted within a specific industry or across industries as well as within one geographical region or across different geographical regions. Know which industry or geographic location the salary results pertain to before comparing the results to your company.” (HR Guide)
Total Compensation Total compensation refers to the complete pay package awarded to employees on an annual basis, including all direct and non-direct compensation such as salary, health care and retirement benefits, incentive pay, and paid time off.
Red Circle A red circle rate is a pay rate that is above the maximum range assigned to the job grade. Employees who are “red circled” are usually not eligible for additional pay increases until the range maximums are increased above the individual pay rate or the employee transfers to a job with a higher pay range.
Compa Ratio Compa-ratio is a measure that expresses current pay rates as a percentage of range midpoints. Where the midpoint of a pay range represents full market pay, the ratio of the employee’s actual salary to that midpoint indicates whether the employee is paid below, at or above market rates.
Broadbanding Broadbanding is a pay structure that consolidates a large number of narrower pay grades into fewer bands with wider salary ranges.
Cost-per-hire Cost-per-hire is an HR metric that measures the costs associated with filling a vacancy. This includes the internal, external, direct and indirect costs associated with sourcing, recruiting and staffing an open position.
Exempt Position Exempt positions are jobs that qualify for an exemption from overtime pay under the Fair Labor Standards Act (FLSA) white-collar and industry exemptions. Employees in exempt positions must generally be paid on a salary basis with limited exceptions.
Discretionary Bonus A discretionary bonus is a form of variable pay where an employer provides additional compensation to an employee for reasons that are not pursuant to any prior contract, agreement or promise that would lead the employee to expect the payments regularly.
Nonexempt Position A nonexempt position, under the Fair Labor Standards Act (FLSA), is one that must be paid overtime for hours worked beyond 40 in a workweek. By definition, it does not meet any of the exemptions to the FLSA that would allow an employer not to pay overtime.
Salaried Nonexempt The designation of an employee as “salaried, nonexempt” means that the employer has designated an employee as nonexempt from the federal Fair Labor Standards Act (FLSA), and chooses to pay a weekly salary that equates to at least minimum wage for all hours worked. On a federal level, this designation means the employee is entitled to overtime pay in addition to the salary for work weeks in which his or her time worked exceeds 40 hours. Some state laws may require daily overtime calculations.
Pay Compression Pay compression, also referred to as salary or wage compression, occurs when the pay of one or more employees is very close to the pay of more-experienced employees in the same job, or even those in higher-level jobs, including managerial positions. Often, it is the result of a market rate for a given job surpassing the increases historically awarded to long-term employees.
Pay Equity Pay equity is the practice of ensuring fair and equal pay practices to all employees regardless of gender, race, age or other protected characteristics.
Pay Grade A pay grade refers to a grouping of jobs at an organization that have approximately the same relative internal worth and are paid at the same or similar rate.
Pay Range A pay range, also known as a salary range, sets the upper and lower compensation limits for jobs within a particular pay grade at an organization.
Performance-Based Pay Performance-based pay, also called pay for performance, is a variable pay strategy that pays employees based on their individual performance and contributions, rather than the value of the job they are performing.
Green Circle Rate green circle rate is an individual salary that’s below the pay range minimum for their jobs. This instance of underpaid employees usually occurs when an organization adjusts their pay range upwards while an employee’s salary remains static.
Skill-Based Pay Skill-based pay is a system which makes the base rate contingent on how many job-related skills the employee has learned, the level of skills mastery or a combination of both.
Wage Compression Wage compression, also known as salary or pay compression, occurs when newly-hired, less-experienced employees earn close to what current employees make.
Salary Inversion Salary inversion refers to situations in which the starting salaries for new recruits to an organization increase faster than those for existing employees.
Wage Creep the gradual movement of a wage earner into a higher federal income-tax bracket as a result of wage increases intended to help offset inflation.
Living Wage, The term living wage refers to a theoretical income level that allows individuals or families to afford adequate shelter, food, and other necessities. The goal of a living wage is to allow employees to earn enough income for a satisfactory standard of living and prevent them from falling into poverty. Economists suggest it should be enough to ensure that no more than 30% of this income gets spent on housing.1 As such, living wages are often substantially higher than the legal minimum wage.