TCHRA PHR and SPHR Preparation Course

Compensation Key Terms TCHRA PHR and SPHR Preparation Course

. Balance sheet- used to determine compensation and housing allowing for differentials based on cost of living differences, currency exchange rate, etc. between home and host country . Benchmark job- positions that are standard across industry and provide for “apples to apples” comparisons for compensation . Broadbanding- combining several salary grades when setting up a pay structure. Pay ranges are wider than normal to provide increased flexibility. . Call back pay- additional compensation when employees must return to work on the same day . Compa ratio- a calculation reflecting position in salary range (pay rate divided by the midpoint of the pay range). A 1.00 or 100% suggests the employee is paid at midpoint . Comparable worth- Concept that states that job using comparable skills, effort, responsibility and working conditions filled primarily by women should have same relative pay as men. Using factors such as decision making, education, experience and other non market based factors to determine appropriate pay levels . Compensable factors- reflects key dimensions or factors perceived to add job value within the organization . Consumer price index (CPI)- a measure evaluating the change in cost of goods and services for the same geographic area over time . Cost of living adjustment (COLA)- a standard measure reflecting changes in the cost of goods and services. Typically used in union environments . Deferred compensation- Compensation that is delayed until a later point in time. Typically used for executives as a tax deferral and retention vehicle . Draw- advanced amounts of pay to be held against future commissions. . Dual ladder career progression- Providing alternative for career growth between a management and technical track, recognizing that not all employees want to serve in a management role . Equal Pay Act- Prohibits discrimination of pay based on protected class area. Expanded under Lilly Ledbetter Fair Pay Act. Defenses include working conditions, shift differential, performance, output, education and experience. . Emergency shift pay- extra pay when employees are called to work to handle emergency or crisis situations. . Equity- some form of ownership within the organization. Examples include stock, stock options, restricted stock . Exempt- Employees are “exempt” from overtime under the Fair Labor Standards Act if they meet defined criteria . Expatriates- employees working outside of their home country . External Equity- paying competitive to the external labor market . Fair Labor Standards Act (FLSA)- Law regulating child labor, minimum wage and overtime provisions. Employees are assumed to be eligible for overtime unless they meet certain standards . Fair Pay Act- Lilly Ledbetter Fair Pay Act which prohibits paying persons differently for the same position based on a protected class. Expands time frame for filing complaints with each paycheck serving as a new act of discrimination . Flat rate pay- provides a job with same rate of pay, regardless of performance or seniority. Also known as single rate pay. . Frequency distribution- listing of grouped data points, from highest to lowest . General pay increase- pay raise given to all employees or class of employees based on competitive market with no consideration of performance . Geographic pay differential- additional or reduced compensation based on employee locations. Differentials are based on cost of living . Golden handcuffs- short and long term compensation programs designed to retain executives . Golden parachute- severance packages typically for executives to ease offboarding or handling of merger/acquisition activities. . Green circle- acceleration of normal pay increases for persons under minimum pay levels . Hazard pay- additional compensation for working in difficult conditions such as risk, hazardous conditions, handling toxic materials, etc. . Incentive pay- additional compensation for achieving certain pre-established goals above and beyond normal duties . Independent contractor- workers not covered under the FLSA . Internal equity- perception of fairness within the organization regarding pay / compensation conditions . Job classification- evaluation method that groups similar positions together . Line of sight- concept in which employees must be able to influence outcomes in attaining goals . Long term incentive- plans covering multi year periods . Lump sum increase- a one time payment not integrated into base salary, may be a performance bonus or a method to reward employees without increasing base pay and compounding . Market pricing- using salary surveys to establish the competitive wage rates for certain positions and determine market value . Mean- the arithmetic average of a sum of numbers . Median- the middle point in an array of numbers, also the 50th percentile with half of the data points above this level and half below . Merit pay- individual performance is used as basis for pay increases . Minimum wage- the lowest legal amount of hourly pay that can be received based on the higher of state or federal mandates. Currently at $7.25/hour at the federal level . Mode- the number that appears the most frequently in an array of numbers . Nonexempt- employees paid overtime after 40 hours in a work week under the FLSA . Nonqualified deferred compensation- compensation that is not immediately taxable. Also it does not qualify under ERISA for tax exemption. Taxation occurs once the individual receives the compensation or “property”. . On call pay- pay received by individuals who are on standby (not working) and must respond within a designated time frame. . Overtime pay- additional compensation received after working supplemental hours on a daily or weekly basis. Required for nonexempt employees under FLSA at 1.5x for hours in excess of 40 in a pay week. . Paired comparison method- job ranking method in which each job is compared against another in job evaluation . Pay compression- occurs when there is a small difference in pay regardless of skills, experience or seniority. Typically occurs when new hires are paid more than existing

2 employees based on market conditions or when first line supervises earn less than subordinates due to overtime pay received by subordinates. . Pay grades- established pay ranges arranged in a hierarchical fashion generally providing a minimum, midpoint and maximum . Performance based pay- employee performance is the basis the amount and timing of pay increases. . Perquisites- supplemental benefits paid to executives and not available for other employees. Examples might include first class air travel, company car, legal and financial services, supplemental retirement programs, executive physicals, etc. . Person based pay- pay system in which individuals education, experience and other characteristics are basis for pay . Phantom stock- used in family owned and privately held organizations in which a program is devised to convert growth in revenue or company worth into a cash equivalent. . Point factor method- a job evaluation method in which certain factors important to the organization receive points. Factors might include competencies in problem solving, accountability, decision making, knowledge, etc. . Portal to Portal Act- covered under the FLSA and governs pay for nonexempt travel time . Premium pay- paying above market rates to attract and retain top talent or difficult to find skillsets . Prevailing wage- the market competitive wage rate established for a position in a defined geographic area . Rabbi Trust- trust arrangement for nonqualified deferred compensation and segregated benefits from employers general assets. . Red circle- freezing pay for employees above the maximum of their salary grade . Repatriation- returning employees to their home country . Restricted stock- stock grants which require an event to occur before issue such as time vesting, performance achievement, etc. . Salary structure- a hierarchical listing of salary ranges for each position including minimum, midpoints and maximum levels for each position . Sarbanes Oxley Act (SOX)- following the Enron, Tyco and Worldcom scandals, SOX provides additional controls including CEO and CFO approving financial statements, review to insure adequate financial controls, independent Board of Directors, mandate of an ethics officer and a 1-800 ethics hotline, etc. . Service Contract Act- a requirement that contracts with the federal government pay employees a minimum of the prevailing wage rate . Shift pay or shift differential- additional compensation to encourage employees to work evenings or weekends . Short term incentive- additional compensation based on a time period of one year or less. . Stock options- right to purchase company stock at predetermined price at some point in future. . Total rewards- the concept of direct and indirect compensation such as base pay, overtime, incentive pay, stock options, benefit programs including health care, retirement, paid time off, training, etc as part of the total compensation package. . Totalization agreements- agreements between countries to avoid double payment of retirement program taxation such as social security

3 . Travel pay- pay for nonexempt employees workers for the time spent traveling to an assignment. . Underwater options- a stock option current market value is less than the options exercise price . Unweighted average- raw average of data the gives equal weight to all factors. . Variable pay- Use of incentive pay, bonus, pay at risk, etc that may vary based on organization performance or attainment of certain goals above and beyond day to day work. . Weighted average- average of data that takes other factors such as the number of incuments into account. . Work opportunity tax credit- a tax credit provided to employers hiring disadvantaged employees such as physically or mentally disabled persons