A glossary of terms for Compensation
- Variable pay: Cash compensation that is earned upon the completion of a specific task (such as making a sale) and/or meeting a goal or quota. Also known as commission pay. Variable pay is often expressed as a ratio to base pay.
- Base pay: The fixed rate of compensation for a role that excludes any other cash compensation such as bonus, variable pay, or overtime pay. An employee’s annual salary is an example of base pay.
- Bonus plan: Incentive-based compensation that is awarded based on the achievement of predefined goals or objectives. The amount earned may be dependent on a number of inputs, including individual performance, department performance, and company performance. Bonus plans are typically managed separately from commission or quota-based pay (see Variable pay).
- Bonus target: The amount that an employee is eligible to earn through their company’s bonus plan. This may be expressed as a percent to their base pay (a 10% bonus calculated based on $100,000 in base pay) or as a flat monetary value ($10,000).
- Bonus amount: The bonus target for an individual employee in a given period, expressed as a monetary value.
- Equity refresh grant: Equity grants that are awarded to an employee above and beyond any grants that were awarded at the time of hire.
- Overall budget: The total budget allocated for a compensation cycle.
- On-target earnings: Total cash compensation that an employee receiving base pay and variable pay is expected to earn if they achieve 100% of their variable pay target. This does not include earnings from bonus (see Total cash).
- One-time bonus: Cash compensation that is awarded on a discretionary basis and not tied to a formal incentive-based bonus plan. Also known as spot bonuses, these may be awarded for achieving a goal, demonstrating high performance, or for any other reason determined by a manager or other leader.
- Promotion equity grant: Equity grants that are awarded to an employee at the time of promotion.
- Total cash: Total cash compensation that an employee earns between base pay, variable pay, and bonus pay.
- Manager's budget: The amount a manager is allocated to use for comp adjustments across all their eligible direct reports. This is based on sum of guidance and any additional distributions.
Compensation bands & job architecture
- Comp band:The pay range for a job role. A compensation band is defined by a minimum and maximum amount. They can differ between roles, levels, and location.
- Compa-Ratio: A calculation expresses current pay as a percentage to the midpoint of a set comp band. For example, if the midpoint of a comp band is $100,000 and an employee is being paid $105,000, their compa-ratio is calculated as such: $105,000 / $100,000 = 1.05
- Job architecture: Framework for understanding roles and their hierarchy within a company.
- Job function: The type of work being done by a group of employees. Examples include Product Design, Sales Development, Content Marketing
- Job type: The category of career paths at a company. Examples include Support, Individual Contributor, Management, Executive.
- Job level: Indicates a level, usually within a job type.
- Job location / Location tier: Used to differentiate compensation bands if the same role is compensated differently across different locations, regions, or tiers.
- Job role: Used to name each compensation band and make them easier to identify.
Compensation cycles
- Compensation cycle: The process of reviewing and updating employee compensation.
- Participant: An employee who is in the comp cycle as eligible or ineligible for a change in compensation
- Eligible: Status that indicates that an employee can receive a compensation change in the cycle.
- Ineligible: Status that indicates that an employee will not receive a compensation change in the cycle, but are still included in the cycle for context.
- Hidden: Status that removes an employee from the compensation cycle. They will not be visible in the cycle.
- Recommender: A manager responsible for making compensation change recommendations for eligible employees in the cycle. The default recommender for an eligible employee is their direct manager.
- Approver: Any manager who is responsible for approving compensation recommendations from the managers who report to them, as well as recommending compensation changes for their own direct reports
- Raise budget: The total budget allocated for merit raise increases and promotion raise increases in a compensation cycle.
- Raise guidance: The suggested raise amount for each employee that is shared with managers to help guide decision-making.
- Promotion guidance: The suggested raise amount for an employee receiving a promotion that is shared with managers to help guide decision-making.
- Target band attainment: A calculation used to determine placement in a compensation band. For example, 50% target band attainment would place an employee in the middle of a pay range.
- Distributed budget: Additional funds allocated to leaders to provide additional budget for merit raise increases and promotion raise increases.
- Pay effective date: The date of the employee's last pay change (start date or date of last merit increase)