Glossary & Education Articles

Average Percentage to Market Rate: The market position of the average employees' salaries within a classification, as compared to the current market rate for the corresponding work area.

Benchmark Jobs: Standard jobs used as reference points for making pay comparisons to develop or validate job worth. Serves as a baseline to which other positions can be compared.

Compensation: A program to determine fair and equitable pay and benefits which considers job factors such as market value, recruitment difficulties, scope and complexity of the function, internal relationships, and value to the employing organization. It refers to the entire range of wages and benefits, both current and deferred, that workers receive out of their employment (includes wages and salaries, plus the cost of providing benefits).

Compensation Philosophy: A comprehensive statement or policy that provides a framework for pay objectives and practices.

Comparator Institution: An institution considered to be a peer, based on similar characteristics and defined criteria.

Exempt Employee: A term referring to an employee who is in a position that is not subject to (exempt from) the minimum wage and overtime pay provisions of the Fair Labor Standards Act. These positions are paid a set amount (salary) regardless of hours worked. Positions in this category are required to meet specific definitions in the FLSA focused on duties, responsibilities and independent decision-making.

External Pay Equity: A fairness criterion or staffing necessity to pay wages that correspond to rates prevailing in the competing labor market.

Internal Pay Equity: Fair alignment of pay practices within an organization that objectively recognize skills, experience and qualifications regardless of tenure or individual employee characteristics.

Internal Title: The functional or “working” title assigned to a position that describes its primary function, and may or may not be the same as the budgeted classification title.

Market Pricing: Relative to compensation, the technique of creating a job worth hierarchy based on the “going rate” for benchmark jobs in the labor market(s) relevant to the organization. Under this method, job content is considered secondarily to ensure internal equity after a preliminary hierarchy is established based on market pay levels for benchmark jobs. All other jobs are “slotted” into the hierarchy based on whole job comparison.

Midpoint: The pay level midway between the minimum and maximum of a pay range, sometimes used as a reference for the market value of jobs in the grade.

Nonexempt Employee: A term referring to an employee who is in a position subject to (not exempt from) the minimum wage and overtime pay provisions of the Fair Labor Standards Act. These positions are paid based on the actual number of hours worked.

Pay: Base rate (hourly, flat-rate, or salary) assigned to position for performance of job duties.

Pay Practices: Guidelines that define various rates of pay above and/or in addition to base pay such as entry rates, overtime, differentials and other incentives.

Pay Range or Grade: A range of pay rates, typically defined by a minimum, midpoint and maximum, which reflect jobs having a similar internal or external (market) value.

Pay Structure: A series of pay ranges which encompass a family of jobs or the entire universe of jobs within an organization.

Peer Group: A collection of institutions based on similar characteristics such as industry/service, location, size, budget, staffing, etc. The establishment of peer groups helps ensure comparability of other characteristics such as pay.

Salary Compression: Salary compression occurs when the difference in pay between new hires and experienced employees becomes increasingly smaller.

Salary Inversion: Salary inversion occurs when new hires are given higher salaries than more experienced employees in the same job.

Slotting: The process of placing jobs without market matches in the job-worth hierarchy based on whole job comparison.

Total Compensation: All types of employee compensation: wages, salaries, non-wage cash payments and fringe benefits.

Wage and Salary Survey: Gathering, summarizing and analyzing data on wages and salaries paid by other employers for selected key classes of jobs or benchmark jobs.