Total Rewards and Compensation Terms You Should Know

When it comes to understanding compensation and total rewards, the terminology can often feel like a maze of complex concepts and industry jargon. Even though I’ve spent the last several years of my career in HR, when I started working at CandorIQ, I found myself constantly asking “What’s the difference between a performance review and a merit cycle?” or “What the heck is a compa-ratio?!” Whether you're an HR professional, a business leader, or simply someone curious about how companies reward and compensate their employees, having a solid grasp of these key terms is important. In this guide, I'll walk you through 30+ compensation and total rewards concepts that will help you better understand the framework companies use to attract, retain, and motivate top talent.

Compensation Terms You Should Know

1. Base Salary: The fixed annual or hourly wage paid to an employee, not including bonuses or other incentives.
2. Variable Pay: Compensation based on performance, such as bonuses, commissions, or profit-sharing.
3. Overtime Pay: Additional pay for hours worked beyond the standard workweek, often required by law.
4. Incentive Pay: Compensation designed to reward employees for meeting specific performance targets or company goals, typically short-term (bonuses) or long-term (stock options).
5. Pay Range: The range of possible salaries for a particular job, defined by a minimum, midpoint, and maximum level.
6. Cost of Living Adjustment (COLA): An increase in pay designed to offset inflation and maintain an employee’s purchasing power.
7. Commissions: Pay tied directly to an employee’s sales performance or other business outcomes.
8. Total Cash Compensation (TCC): The sum of base salary and any variable pay like bonuses or commissions.
9. Pay Equity: Ensuring that employees are compensated fairly based on experience, skills, and job roles, regardless of gender, race, or other demographics.
10. Market Pricing: The process of determining the compensation level for a position based on what similar jobs are paid in the external labor market.
11. Salary Compression: When new hires are paid more than or close to existing employees due to market conditions, causing discrepancies in pay among employees with different levels of experience.
12. Compa-Ratio (short for "comparative ratio"): A metric used to compare an employee's current salary to the midpoint of a predetermined salary range for their role. It’s calculated by dividing the employee’s salary by the midpoint of the salary range and then multiplying by 100 to express it as a percentage. Formula: Compa-ratio = (Employee’s Salary / Midpoint of Salary Range) × 100
13. Range Penetration: Shows how far an employee's salary has progressed within their assigned salary range. It indicates where the employee's pay falls between the minimum and maximum of that range, expressed as a percentage. This metric helps organizations track an individual's pay growth and manage salary adjustments within a structured pay range. Formula: Range Penetration = (Employee’s Salary – Minimum of Salary Range) / (Maximum of Salary Range – Minimum of Salary Range) × 100

Total Rewards Terms You Should Know

1. Total Rewards: The complete package of compensation, benefits, and other perks offered by an employer, encompassing both financial and non-financial rewards.
2. Benefits: Non-cash compensation provided to employees, including health insurance, retirement plans, paid time off, and wellness programs.
3. Stock Options: A form of long-term incentive that gives employees the right to purchase company shares at a set price after a certain period.
4. Restricted Stock Units (RSUs): Shares given to employees as part of their compensation, which are subject to vesting conditions over time.
5. Profit-Sharing: A program where employees receive a portion of the company’s profits, often on an annual basis, as part of their compensation.
6. Employee Stock Ownership Plan (ESOP): A program allowing employees to own a share of the company through stock purchases or grants.
7. Long-Term Incentives (LTI): Compensation programs designed to reward employees over an extended period, typically tied to company performance or stock value, e.g., stock options or performance shares.
8. Bonuses: One-time payments made to employees as a reward for achieving specific performance metrics or company milestones.
9. Recognition Programs: Non-cash rewards given to employees for accomplishments or exemplary work, often including awards, public recognition, or gifts.
10. Wellness Programs: Initiatives designed to improve employees’ health and well-being, which may include gym memberships, mental health support, or wellness coaching.
11. Employee Assistance Program (EAP): Employer-sponsored programs offering counseling and support services to employees for issues such as stress, substance abuse, or financial difficulties.
12. Work-Life Balance Programs: Benefits aimed at helping employees balance work and personal life, such as flexible working hours, remote work options, and parental leave.
13. 401(k) Matching: An employer’s contribution to an employee’s 401(k) retirement plan, typically based on the amount the employee contributes.
14. Deferred Compensation: A portion of an employee's pay that is set aside to be paid at a later date, often in the form of retirement plans.
15. Pension: A retirement plan in which an employer contributes to a pool of funds set aside for an employee’s future benefit.

5 Additional Key Concepts

1. Total Compensation: The overall value of all compensation components, including base salary, variable pay, benefits, and any other rewards.
2. Pay for Performance: A compensation philosophy where an employee’s pay is directly tied to their individual performance or company performance.
3. Vesting: The process by which an employee earns the right to receive benefits, such as stock options or retirement contributions, over time.
4. Non-Monetary Rewards: Benefits or perks that don’t involve direct financial compensation, such as recognition, development opportunities, or extra vacation time.
5. Employee Value Proposition (EVP): The unique set of benefits and rewards an organization offers to attract and retain talent.

Hopefully this is useful—I know firsthand that navigating all the nuances of compensation and total rewards can feel like a lot. Thankfully the HR community is a generous one that always seems to be happy to help. And companies like CandorIQ are ready to help you stay organized and ready to make proactive, strategic moves.

Let us know if you’d like to learn more.

‍