Definitions of Key Terms

 

Policy: the strategic and philosophical principles that guide design, implementation and administration of an organization’s compensation programs.

 

Compensation Strategy: The actions and decisions which support an organization’s business objectives and specify what programs will be used and how they will be administered.

 

Compensation Philosophy: The beliefs and values which the organization uses to assure that the compensation programs support the organization’s culture.

 

50^th Percentile of Market  (or median): The value at which 50% of employers surveyed pay less and 50% pay more.

 

75^th Percentile of Market: The value at which 75% of employers surveyed pay equal to or less.

 

Internal Equity: a fairness criterion that implies an organization’s pay practices correspond to each job’s value in the organization.

 

External Equity: The alignment of an organization’s pay levels for specific jobs to be competitive with the amount paid for the same or similar jobs in the defined labor market.

 

Compa-ratio: The current salary of an employee divided by the current market rate average and expressed as a percentage ( a compa-ratio of 90% would indicate that the employee’s salary is 10% below the current market rate average).Compa-ratio can also be used to express the relationship between the employee’s salary and the current midpoint or Job Rate of the job.

 

Pay compression: A situation when the pay rates of several employees despite clear differences in performance and/or experience, are tightly clustered.

 

Benchmark jobs: the positions selected for comparison to the labor market by surveying organizations likely to have similar jobs.

 

Recruiting Market or Recruitment Area: the segment of the national labor market from which an organization hires its employees. Different jobs may have different markets depending on the skill sets being sought.