The following is a glossary for terms for compensation and compensation plans.

Annual Incentives

Annual incentives determined by a formula that are awarded based on the employee's contributions, in conjunction with the organization's financial performance. Short-term incentives are based on targets of 12 months or less.

Base Pay

Fixed compensation an employee receives for performing specific job responsibilities. Base salary can be paid as a salary or hourly rate.

Bonus

A one-time discretionary payment that does not become part of an employee's base salary. The variable portion of the compensation package.

Broadbanding

Practice of using fewer pay grades having broader ranges than traditional compensation systems.

Commissions

Pre-determined incentive amount for each unit of sales made. Commonly expressed as a percent of each sales dollar, percent of gross margin, or dollar amount per unit sold.

Compa-Ratio

Pay level divided by the midpoint of the pay range.

Compression

Situation in which pay differences among individuals with different levels of experience and performance becomes small.

Deferred Compensation

Compensation payments that are payable to the employee at some point in the future.

Draw Against Commissions

Amount advanced from and repaid to future commissions earned by the employee.

Employee Stock Ownership Plans (ESOP)

A plan whereby employees gain stock ownership in the organization for which they work.

Expatriate

An employee working in a unit or plant who is not a citizen of the country in which the unit or plant is located, but is a citizen of the country in which the organization is headquartered.

Gain Sharing Plans

The sharing with employees of greater-than-expected gains in profits and/or productivity.

Host-Country National

An employee working in a unit or plant who is a citizen of the country in which the unit or plant is located, but where the unit or plant is operated by an organization headquartered in another country.

Hourly Rate

Payments directly calculated on the amount of time worked. The annual pay is determined by the number of hours worked during the course of the year, and the hourly rate of pay. Positions paid on an hourly rate are typically considered non-exempt, and are paid overtime.

Incentive Stock Option (ISO)

A stock option that qualifies for favorable tax treatment (no tax at exercise and long-term capital gains treatment, if shares are held for one year after exercise and two years after grant before sale) and which meets other rules as specified by legislation. The applicable section of the Internal Revenue Code (IRC) is Section 422.

Long-Term Incentives

Incentives determined by a formula that are awarded based on the employee's contributions, in conjunction with the organization's financial performance. Long-term incentives are based on targets of more than 12 months, and can be cash or stock based.

Merit Increase

Annual increase an employee receives tied to performance and merit budget practices.

Nonqualified Stock Option (NQSO)

A stock option that does not qualify for special tax treatment under Section 422 of the Internal Revenue Code (IRC) or which is designated by the company as not being an incentive stock option (ISO). Also called a nonstatutory stock option.

Pay Equity

Similarity in pay for jobs requiring comparable levels of knowledge, skills, and abilities, even where actual job duties and responsibilities differ significantly.

Pay for Performance

Amount and timing of salary increases and incentives are based on meaningful individual performance.

Pay Grade

A grouping of individual jobs having approximately the same job worth.

Pay Survey

A collection of data on existing compensation rates for workers performing similar jobs in other organizations.

Performance-Based Restricted Stock

Restricted shares of stock awarded to an employee in which the shares are contingent on the achievement of either internal or external performance measures or an increase in the company's stock price.

Performance-Sharing Plan

Provides rewards based on performance of a combination of quantitative and/or qualitative measures.

Perquisites

Special benefits, usually non-cash items, for executives.

Phantom Stock

An arrangement whereby someone receives the appreciation in the book, fair-market or formula value over a set period of time. Phantom shareholders do not own actual stock and typically do not have voting rights; however, they are usually eligible to receive dividends or their equivalent. Phantom stock is used by privately-held companies that want to be competitive, but cannot or do not want to grant actual stock to executives.

Piece-Rate System

Pay system in which wages are determined by multiplying the number of units produced by the piece rate for one unit.

Position-in-Range (PIR)

Indicates the extent to which an incumbent's salary actually penetrates within the salary range. The within grade range is shown as 0% to 100%.

Profit Sharing

Form of compensation provided to all employees based on the profits of the organization. Payouts can be provided as cash or stock.

Restricted Stock

Stock that is given (or sold at a discount) to an employee, who is restricted from selling or transferring it for a specified time period (usually three to five years). The employee receives dividends, but must forfeit the stock if he/she terminates employment before the restriction period ends. If the employee remains in the employ of the company through the restricted period, the shares vest, irrespective of employee or company performance.

Salary

Payments that are consistent from period to period, despite the number of hours worked. Salaries are generally paid to higher level positions that are exempt from overtime pay.

Salary Structure

Structure comprised of multiple pay grades.

Skill-Based Pay

Compensation based on the attainment and performance of required job skills.

Stock Grant

Stock provided to employees at no cost to them.

Stock Option

The right to purchase stock (fixed number of shares) at a fixed stock price over a specified period time period after time requirements of continued employment are met.

Stock-Appreciation Rights (SAR)

An executive incentive plan in which the corporation grants an executive the right to receive a dollar amount of value equal to the future application of its shares, often in lieu of the executive exercising a share option. An SAR typically is granted as a companion (in tandem) to a share option, and the executive must surrender a matched number of option shares to "cash-in" the SAR. SARs usually are not used except by U.S. companies operating in some foreign countries where tax and other laws preclude the use of stock options.

Team/Group Incentives

Incentives provided based on the accomplishments of a team or group.

Third-Country National

An employee who is a citizen of one country, working in a second country, and employed by an organization headquartered in a third country.

Total Cash Compensation

The value of base salary plus annual bonus/incentives.

Total Direct Compensation

The total value of base salary, annual bonus/incentives, the expected values of all longer-term programs, plus benefits and perquisites expenses.

Variable Pay

Compensation linked directly to performance accomplishments. Typically linked to corporate, division, and individual performance. The variable portion of the compensation package.