Compensation Glossary: Defining Common Comp Terms

A.

• Attrition rate: The measure of how many employees are leaving the company over a specific period of time. This is often presented as a percentage and can be calculated using the following formula:

  

B.

• Base Salary: The fixed income an employer agrees to pay an employee for the job excluding anything additional like bonuses, overtime, commissions, tips, or benefits

• Benchmark jobs: These are jobs that are standard and common enough that responsibilities are consistent across different companies, and reliable survey data is available for these roles, therefore allowing you to make easier pay comparisons. Examples include HR Manager or Marketing Specialist. 

C. 

• Compa-Ratio: A measurement technique used to compare an employee's salary to the midpoint of the salary range. 

  • • Compa-ratio < 1: The employee is paid less than the midpoint

    • Compa-ratio = 1: The employee is paid at midpoint

    • Compa-ratio > 1: The employee is paid above the midpoint.

  •  Compa-ratio can be calculated using the following formula: 

    

• Compensation Benchmarking: This is the process of comparing the salary of internal jobs to similar roles externally by using data. Compensation benchmarking is a key step to understanding the market value of a role, where you stand in comparison to the market and ensuring that you are paying employees competitively in order to attract and retain top talent. 

• Compensation Cycle: Also known as “comp cycle,” this refers to scheduled periods during the year in which decisions around total compensation get reviewed and updated. Most companies have 1 to 2 periods during each cycle. 

• Compensation philosophy: Think of compensation philosophy as the company's formal roadmap and guiding principles for paying employees. It defines the why and the how behind compensation, and considers various factors like market competitiveness, equity, location, and company values you want to express. 

• Compensation Surveys: Traditional compensation surveys are widely considered to be the gold standard data source due to the nature of its high-volume data and rigorous methodology. Survey vendors like Aon, Mercer, Korn Ferry, Pearl Meyer, etc. gather salary data from companies across the globe. They follow a rigorous methodology to analyze, validate, and package the data, which compensation professionals then use to benchmark and set competitive pay for their internal roles. Compensation surveys are separate from other sources of compensation data like crowd-sourced or real-time data. 

D. 

• Data Cut: Sometimes just referred to as “cut” is a specific subset of data that is extracted or isolated for the purpose of more specific analysis. For example, a local cut can be “Austin, Texas” and a national cut is the “United States”. Another example is an industry cut like “finance.” 

E.

• Equity Compensation: This is a form of pay that gives employees an opportunity to have a stake in the company. This is given alternatively or in addition to traditional base salaries and examples include stock options or restricted stock units (RSUs). Companies vary in their rules on how equity compensation gets paid out. 

G. 

• Geographic pay differential: This refers to the concept of adjusting salary based on location. For example, employees in California may get paid higher for the same role when compared to someone in Kansas due to California having a much higher cost of living.   

• Green Circled: This means that the employee is paid below the established salary range minimum.

H.

• Human Resources Information System (HRIS): An HRIS is software that helps unify different administrative components of HR for a more streamlined experience. It also serves as a central repository to store, manage, and process employee data within an organization. In addition to serving as a central database of employee data, other components of an HRIS include scheduling and labor optimization, payroll and workforce management, talent acquisition and retention, employee interface and benefits management. 

  Workday is an HRIS trusted by many leading organizations around the world. BetterComp is the only market pricing solution that is part of Workday’s partner ecosystem. Connect with us to learn more about this partnership!
  

J.

• Job Architecture: This is a formal map that displays the infrastructure of jobs in your organization and includes details such as job families, functions, and a leveling convention. It is much more detailed than an organizational chart or a reporting structure. Job architecture provides a systematic framework for career development, internal mobility, and compensation decisions. 

• Job Family: An overarching group or department of jobs within the same line of work. For example, HR, Engineering, and Marketing are all different job families. 

• Job Function: This is a sub-category within a job family, and looks at groups of jobs with same expertise or core responsibilities. For example, Comp and Benefits have different job functions even though they both fall under the HR job family.

• Job Levels: This is an internal hierarchical structure that relates to your title, responsibility, and salary. For example, individual contributors, manager, senior manager, director, and VP are all different levels within an organization

• Job-based Compensation: A pay strategy that determines how much to pay an employee by looking at where a specific job title or role lies within the hierarchy of the organization.

M.

• Market-based Adjustment: A change to your salary to reflect the appropriate market value or market trends for a job. This is typically validated by compensation data and can be affected by economic factors like inflation or cost of living. This is not related to individual performance or changes in responsibility. 

• Market Based Compensation: A pay strategy that determines how much to pay an employee based on external market analysis and what other companies are paying for a similar role or skill set. Having reliable market data is extremely important when using this pay strategy. 

• Market Pricing: This is the method of determining fair market value of a job or a group of jobs. There is significant complexity to process, and our comprehensive guide can provide more clarity on why market pricing is important and where to begin.

• Market Value: The “going rate” the external labor market has decided for a particular role and set of responsibilities

• Mean: The mathematical average of the given numbers, where the sum of observations is divided by the number of observations

• Median: This is the value at the middle of a distribution of numbers that has been sorted from smallest to largest. In market pricing, the median is the 50th percentile. 

P.

• Pay Equity: This is a moral and legal concept that people who are performing same or similar jobs should be paid similarly and that the decision for pay should not be influenced by factors of identity such as an employee’s race, gender, ethnicity, religion, or age.

• Pricing Policies: This is a BetterComp nomenclature. We take your market pricing methodology and embed it into our system so that our tool understands how you like to price. This allows you to make large scale changes quickly.

   

  Want to see pricing policies in action? Schedule a time to chat with us here.

R. 

• Range penetration: This is a compensation metric that looks at where an employee’s salary lies within the particular pay band. This is different from compa-ratio because compa-ratio is focused only on the midpoint, whereas range penetration looks at the position in regard to the entire pay band. Range penetration can be calculated using the following formula: 

  

• Red Circled: This means the employee is paid above the established range maximum 

S. 

• Salary band: Includes the minimum and maximum pay range for a particular role

• Salary compression: Also known as pay compression or wage compression, this is when a longer-tenured employee gets paid similarly or less than a new employee with less experience. This typically happens as a result of raising pay to attract new talent while neglecting to review its impact on current employees. 

T.

• Target percentile: Expressed as a percentage, this compensation metric shows how you pay employees compared to the market rate. The 50th percentile is the median of the market. 

  • Paying at 50th percentile: Meeting the market 

  • Paying > 50th percentile: Leading the market

  • Paying <  50th percentile: Lagging the market