The Compensation Glossary: 50 Terms Every HR and Finance Leader Should Know

Compensation Terms: A to Z

Fifty terms covering everymajor area of compensation management: job architecture, job evaluation, marketpricing, salary bands, merit cycles, pay equity, total rewards, and executivecompensation. Each definition includes context on why the term matters andwhere it connects in the compensation governance framework.

A

Adjusted Pay Gap

The difference in average pay between demographic groups that remains after controlling for legitimate pay factors such as job grade, performance rating, location, and tenure. The adjusted gap isolates the portion of pay disparity that cannot be explained by documented business factors and is the primary measure used in pay equity audits and litigation. Distinguished from the unadjusted gap, which is the raw average pay difference before any controls are applied. A statistically significant adjusted gap is the strongest evidence of pay discrimination riskin a compensation structure.

CompBldr module: Pay Equity Audit Guide.

Aging (Survey Data)

The process of adjusting published compensation survey data from its effective collection date forward to the current date, using a projected annual wage growth rate for the relevant market sector. Surveys are collected annually, so data may be six to eighteen months old by the time it is used. Formula: Aged Rate = Survey Rate x (1 + Annual Wage Growth Rate) ^ (Months Since Effective Date / 12). In fast-moving markets such as technology and AI engineering, failing to age survey data can cause market references to understate current compensation by 10 to 20 percent, producing salary bands that become non-competitive within months of being set.

CompBldr module: Market Pricing Methodology.

‍Annual Merit Budget

The total percentage of payroll allocated by an organization for base salary merit increases in a given fiscal year. Set jointly by HR and Finance before the merit cycle opens. In 2026, the US average annual merit budget is 3.5 percent according to Payscale, Mercer, and WorldatWork survey data. The merit budget is distributed through the merit matrix based on performance rating and compa-ratio, not applied as a equal flat percentage to all eligible employees. The budget is distinct from any separate budget for equity adjustments or promotional increases.

CompBldr module: Merit Cycle Guide.

B

Band Maximum

The highest salary within a job grade's salary band, representing the ceiling of pay for roles in that grade. An employee paid above the band maximum is called a red-circle employee. Merit increases that would push an employee above the maximum should be capped at the maximum, and the situation reviewed: either the role scope has grown enough to warrant a grade change, or the band needs updating based on market movement. Uncapped above-maximum pay creates internal equity problems and complicates pay equity analysis.

CompBldr module: Salary Band Building Guide.

Band Midpoint

The salary value at the exact center of a salary band's range, representing the P50 market anchor for the job grade. The midpoint is derived from external compensation survey data and the organization's documented pay positioning strategy. It is the reference point for compa-ratio calculation. When a salary band is updated to reflect market movement, the midpoint shifts, which changes the compa-ratio for all employees in that grade without any change in their actual salary. The midpoint is not an average of current employee salaries; it is a market anchor.

CompBldr module: Compa-Ratio Guide.

Band Minimum

The lowest salary within a job grade's salary band, representing the floor below which pay for that grade should not fall. The band minimum is typically set at 80 to 90 percent of the band midpoint for most grade levels. Employees paid below the band minimum are called green-circle employees and typically receive immediate equity adjustments to bring them to the minimum. New hire offers should not be made below the band minimum. In pay transparency jurisdictions, the posted salary range minimum must equal the band minimum.

CompBldr module: Salary Band Building Guide.

Base Salary

The fixed annual or hourly pay an employee receives in exchange for their work, typically paid bi-weekly or semi-monthly and not varying based on individual performance, company financial results, or hours worked above the standard. Base salary is the most visible component of total compensation and the one most commonly compared across organizations and job postings. It is the primary input for compa-ratio calculation, the foundation on which bonus percentages and equity grant multiples are typically calculated, and the component governed by merit cycles.

CompBldr module: Compensation Planning Module

Benchmark Role

A specific job that can be directly matched to one or more compensation survey positions because its scope, level, and accountabilities closely reflect the survey's job description for that position. Benchmark roles are used as anchors in salary band construction. Non-benchmark roles (jobs with unique or specialized scope that do not map cleanly to any survey position) are priced by reference to adjacent benchmark roles with adjustments based on evaluated scope differences. A well-designed job architecture maximizes the number of roles that can be directly benchmarked.

CompBldr module: Market Benchmarking Module

Broadbanding

A salary structure design that consolidates many narrow salary grades into fewer, wider bands. A traditional structure might have twelve grades with 50 percent range spreads. A broadbanded structure might consolidate those into five bands with 100 to 150 percent range spreads. Broadbanding provides more flexibility for lateral career moves without grade changes and reduces the frequency of grade changes for scope expansions. It also reduces visibility into pay progression, which can complicate pay equity analysis and make pay positioning strategy harder to communicate to employees.

CompBldr module: Job Grades vs Levels Guide.

C

Career Level

A progression tier within a job family that defines the scope, autonomy, impact, and expected capabilities of roles at a given career stage. Career levels are specific to each job family: Level 4 in Engineering has different criteria than Level 4 in Finance, even if both map to the same job grade. Levels govern career conversations and promotion decisions. Grades govern pay. Most organizations use four to seven career levels per job family. Level criteria should be specific enough to differentiate adjacent levels clearly but stable enough to remain valid as the organization grows.

CompBldr module: Job Architecture Module.

Carried Interest

A share of the investment profits allocated to general partners and investment professionals at private equity, venture capital, and hedge fund firms as incentive compensation. Carried interest is typically 20 percent of the fund's profits above a defined hurdle rate. For tax purposes, carried interest has historically been taxed as long-term capital gains rather than ordinary income in the United States, though this treatment has been subject to ongoing legislative debate. Carried interest vests based on the fund's investment performance over the holding period, typically five to ten years, making it a long-dated long-term incentive.

CompBldr module: Compensation Consulting Services Use Case.

Clawback Provision

A contractual requirement that an employee return previously paid compensation under defined circumstances. Common triggers include voluntary resignation within a specified period of receiving a sign-on bonus, restatement of financial results that overstated the performance on which an incentive was paid, and misconduct. The Dodd-Frank Act requires SEC-registered companies to maintain clawback policies for executive incentive compensation. Clawback provisions should be clearly documented in the compensation agreement, reviewed by employment counsel, and applied consistently to avoid discrimination claims.

CompBldr module: Sign-On Bonus Guide

Compa-Ratio

A metric that compares an employee's current base salary to the midpoint of their salary band. Formula: Compa-Ratio = (Employee Annual Base Salary / Salary Band Midpoint) x 100. A compa-ratio of 100 means the employee is paid exactly at market midpoint. Below 80 typically indicates significant underpayment and flight risk for high performers. The range of 90 to 110 is the target zone for fully performing employees. Above 120 indicates the employee is paid significantly above the band ceiling and may create compression risk or budget inefficiency. Used in merit matrices to differentiate increases by pay position.

CompBldr module: Compa-Ratio Deep Dive.

Compensable Factors

The specific criteria used to evaluate and score a job's relative worth in a point factor job evaluation system. Typically organized across four dimensions: knowledge and skill (education requirements, technical depth, breadth of expertise), mental complexity (problem-solving demands, analytical requirements, degree of judgment), accountability and impact (financial responsibility, organizational impact, scope of decisions, supervisory responsibility), and working conditions (physical demands, environmental factors, travel requirements). Compensable factors operationalize the Equal Pay Act standard that equal pay must be provided for work requiring equal skill, effort, and responsibility performed under similar conditions.

CompBldr module: Job Evaluation and JESAP Module.

Compensation Governance

The framework of processes, methodologies, documentation standards, and approval workflows that ensures compensation decisions are made consistently, accurately, and defensibly across an organization. A compensation governance framework includes a documented job evaluation methodology, market benchmarking process with documented survey matching logic, salary band version control, merit cycle management with real-time budget tracking and structured approvals, pay equity monitoring, and an audit trail logging every compensation decision with user, timestamp, and rationale. Compensation governance is the difference between a compensation structure that holds up under employee questioning, investor due diligence, or regulatory scrutiny and one that does not.

CompBldr module: Why CompBldr.

Compensation Philosophy

A written document that defines an organization's beliefs and principles about how it pays employees. Must include: a market positioning statement specifying which percentile of the external market the organization targets for each job family or employee group; an internal equity commitment defining how the organization measures and maintains pay fairness; a pay transparency approach specifying how and when salary range information is shared; a total rewards philosophy addressing the full compensation package beyond base salary; and a governance framework defining who has authority to make compensation decisions and at what approval thresholds. Without these five components, a compensation philosophy is an aspiration rather than a governance document.

CompBldr module: Compensation Philosophy Guide.

Compression (Pay Compression)

A compensation condition where employees with significantly more experience, tenure, or demonstrated performance are paid at nearly the same level as peers with less experience, or where newer hires are brought in at salaries that approach or exceed what existing employees earn in the same role. Caused by market salary increases outpacing internal merit budgets, new hires entering at or above the band midpoint, or flat merit increase practices that do not differentiate by pay position. Pay compression is the most common cause of voluntary attrition among high performers and is addressed through a separate equity adjustment program rather than through the merit cycle.

CompBldr module: Pay Compression Guide

Cost of Labor Index

A geographic multiplier that adjusts compensation levels to reflect the differences in labor market costs between locations. Distinct from cost of living index, which reflects consumer price differences. The cost of labor index reflects what employers must pay to attract and retain talent in a specific geography, based on labor supply and demand dynamics rather than on what employees spend their income on. Used to set geographic pay differentials in salary band structures for organizations with employees in multiple locations. A Senior Engineer in San Francisco warrants a higher salary than the same grade in Austin not because San Francisco is more expensive to live in, but because the San Francisco labor market for engineers is more competitive.

CompBldr module: Salary Range Definition Guide

D

Deferred Compensation

An arrangement where a portion of an employee's earned compensation is set aside to be paid at a future date, typically upon retirement, separation from service, or another defined triggering event. Deferred compensation plans are common for executive populations. Non-qualified deferred compensation plans under IRC Section 409A allow executives to defer significant income beyond the limits of qualified retirement plans. The deferred amounts remain obligations of the employer and are subject to employer insolvency risk. Section 409A imposes strict requirements on the timing of deferral elections and distributions, with severe tax penalties for non-compliance.

CompBldr module: Executive Compensation Guide.

Differentiated Pay Positioning

A pay positioning strategy that applies different market percentile targets to different job families or role clusters based on the competitive dynamics of each talent market. An organization using differentiated positioning might target P75 for engineering and data science roles where talent competition is most intense, P50 for most corporate function roles, and P40 for high-supply administrative roles. Differentiated positioning is more sophisticated than a flat P50 or P75 strategy but requires more documentation and communication. The positioning decision for each job family must be documented as part of the salary band methodology.

CompBldr module: Compensation Philosophy Guide.

E

EBIT (Earnings Before Interest and Taxes)

A financial performance metric commonly used as the basis for executive short-term incentive plan metrics at private companies and PE-backed businesses. EBIT measures operating profitability before the effects of financing decisions (interest) and tax obligations. Using EBIT as an STI metric aligns executive compensation with operational performance that management can directly influence, excluding factors like capital structure decisions made at the board level. Variants include EBITDA (adding back depreciation and amortization) and adjusted EBITDA (further excluding non-recurring items), each of which is commonly used in PE-backed company management incentive plans.

CompBldr module: Executive Compensation Guide.

 EEOC Pay Data Report

An annual filing required by the US Equal Employment Opportunity Commission from private employers with 100 or more employees. Currently requires Component 1 data: workforce demographic information by race, ethnicity, sex, and job category. California additionally requires a separate state-level pay data report from employers with 100 or more California employees, due to the California Civil Rights Department by the second Wednesday of May annually. The California report requires mean and median hourly rate disclosure by job category and demographic intersection, which is more granular than the federal filing. Accurate demographic and compensation data organized by EEOC job category is the foundational requirement for both reports.

CompBldr module: Pay Equity Audit Guide.

 Equity Adjustment

An off-cycle base salary correction that addresses a structural pay gap not caused by performance: pay compression, market movement that made a salary band midpoint non-competitive, a pay equity finding identifying a demographic disparity, or a promotion lag where an employee's scope has grown beyond their grade. Equity adjustments are separate from merit increases and should be documented as gap-closing actions with the specific rationale for each adjustment. They draw from a separate budget pool from the merit cycle. Applying equity corrections through the merit cycle obscures the purpose of each pay action and distorts the merit matrix logic.

CompBldr module: Pay Equity Audit Guide.

 External Equity

The degree to which an organization's compensation is competitive relative to the external labor market. High external equity means employees are paid at or above what comparable organizations pay for equivalent work. Low external equity means pay is below market, increasing attrition risk and making competitive hiring more difficult. Market pricing is the primary methodology for assessing and maintaining external equity. Distinguished from internal equity, which measures fairness of pay relative to other roles within the organization regardless of external market rates. Both are required for a complete compensation governance framework.

CompBldr module: Market Benchmarking Module.

‍G

Grade (Job Grade)

A pay band grouping that assigns a specific salary range to a set of roles based on their evaluated internal value. All roles in the same grade share the same salary band minimum, midpoint, and maximum regardless of their job family or title. Grade placement is determined by job evaluation score: roles scoring within a defined point range are assigned to the corresponding grade. Grades are the fundamental unit of the salary band structure. Changing a role's grade is a regrade, which requires a new evaluation or documented scope change, not simply a title promotion or tenure milestone.

CompBldr module: Job Evaluation Module.

Green-Circle Employee

An employee whose current salary falls below the minimum of their salary band. This can occur when a new hire is placed below band minimum, when a salary band minimum increases above an incumbent's salary following a market update, or when an employee is promoted to a new grade but the increase is insufficient to reach the new grade's minimum. Green-circle employees should receive an immediate equity adjustment to the band minimum. Unlike red-circle employees (above the band maximum), whose increases are frozen, green-circle situations are typically resolved quickly because paying below the band minimum creates both pay equity risk and competitive hiring problems.

CompBldr module: Salary Band Building Guide.

H

 ‍Hurdle Rate

The minimum required rate of return or performance threshold that must be met before carried interest or performance-based incentive compensation vests or is paid. In private equity, the hurdle rate (also called the preferred return) is typically 8 percent annually on committed capital. Until the fund achieves this return for limited partners, the general partner does not receive carried interest. In executive compensation plans, a hurdle rate defines the minimum performance level that triggers any payout of a performance-based award, protecting against rewarding below-market results.

CompBldr module: Executive Compensation Guide.

I

Internal Equity

The degree to which employees in comparable roles with comparable scope, accountability, and performance are compensated consistently relative to each other within the organization, regardless of external market rates. Internal equity is achieved through a consistent job evaluation methodology that produces defensible grade placements, salary bands applied consistently across equivalent grades, and merit cycles that document the basis for each individual pay decision. Internal equity is assessed by comparing compa-ratios within grade clusters across demographic groups. Internal equity and external equity are both required; optimizing for one at the expense of the other produces either non-competitive pay or defensible pay that still fails pay equity analysis.

J

JESAP

CompBldr's proprietary 15-factor point factor job evaluation framework. JESAP scores each role across four dimensions: Knowledge (education requirements, experience requirements, technical depth, breadth of knowledge, specialized expertise), Complexity (problem-solving complexity, innovation requirements, analytical demands, decision-making ambiguity), Accountability (financial impact, organizational impact, scope of decisions, supervision given or received), and Conditions (physical demands, environmental or risk factors). Total JESAP scores map directly to job grades. Every evaluation is logged permanently with the evaluator identity, timestamp, and individual factor scores, making grade placements fully auditable.

CompBldr module: JESAP Evaluation Module.

Job Architecture

A structured framework that organizes every role in an organization into job families, career levels, job grades, and job codes, creating a consistent language for compensation decisions, career progression, and workforce planning. Job architecture is the foundational infrastructure that makes salary benchmarking accurate (by providing the matching attributes for survey position identification), pay equity analysis defensible (by defining what comparable means), merit cycle governance consistent (by connecting every employee to a documented grade and salary band), and career development conversations clear (by providing documented level criteria per job family). Organizations without a formal job architecture are benchmarking blindly and grading by judgment.

CompBldr module: Job Architecture Module.

 Job Code

A unique alphanumeric identifier assigned to each distinct role in an organization's job architecture. A well-structured job code encodes key attributes of the role: family, sub-family, grade, and sequence. Example: ENG-SWE-G5-001 for the first senior software engineering role in the Engineering family, Software Engineering sub-family, Grade 5. Job codes travel with the role definition across all HR systems: HRIS, ATS, compensation platform, and learning management system. They are the integration key that allows compensation data and people data to be connected reliably across systems without depending on inconsistent job titles.

Job Evaluation

The process of assessing a role's relative internal value by systematically scoring it against a defined set of compensable factors. The total evaluated score determines the role's grade placement. Job evaluation produces defensible, auditable grade placements that can be explained in terms of documented criteria rather than subjective judgment, title seniority, or management advocacy. The point factor method is the most widely used formal evaluation methodology because it produces consistent results that can be compared across roles, recalculated when scope changes, and defended under pay equity scrutiny. CompBldr uses the JESAP 15-factor framework for all evaluations.

CompBldr module: Job Evaluation Module.

Job Family

A group of roles that share a common function, professional domain, or type of work within an organization. Examples include Engineering, Finance, People Operations, Sales, Legal, Marketing, and Customer Success. Within each job family, roles are organized by sub-family and career level. Job families are the primary organizational unit for survey matching (each family is benchmarked to the most relevant survey sources with appropriate blend weights), salary band construction (Engineering Grade 5 has a different band from Finance Grade 5 reflecting different market dynamics), and career path design (level criteria are specific to each family's functional scope).

CompBldr module: Jb Families Guide.‍

Job Matching

The process of identifying the external compensation survey position that most accurately represents an internal role, used to produce a reliable market reference point for salary band construction. Reliable matching uses job family, grade level, scope of decision-making authority, management responsibility, and organizational impact as matching criteria rather than job title similarity. Title-based matching produces unreliable anchors because titles are not standardized across organizations. Architecture-based matching using evaluated role attributes produces significantly more defensible market reference points. Every match decision should be documented with the selection rationale and any alternatives considered.

CompBldr module: Survey Matching Guide.

L

Long-Term Incentive (LTI)

A component of total direct compensation designed to align employee interests with long-term organizational value creation and provide a retention incentive through multi-year vesting. Common LTI vehicles include restricted stock units (RSUs), which vest over time regardless of performance; performance share units (PSUs), which vest based on multi-year financial or TSR metrics; stock options, which provide the right to purchase shares at a fixed exercise price; and deferred cash plans. At most public technology and financial services companies, LTI is the largest component of total compensation for senior employees. For pre-IPO companies, equity grants fulfill the same function.

CompBldr module: Total Compensation Guide.

M

Management Incentive Plan (MIP)

A performance-based equity or cash incentive program designed for portfolio company management teams at PE-backed businesses. MIPs typically provide management teams with a meaningful ownership stake (commonly 5 to 15 percent of equity value) that vests based on the fund's investment performance and exit price. MIP design aligns management compensation with the private equity return thesis, creating shared incentive to achieve the operational improvements and value creation milestones that drive the investment return. MIP documentation must be carefully structured to comply with Section 409A (for deferred compensation components) and to clearly define the vesting and payout mechanics at exit.

Market Reference Point

The blended, aged market rate for a specific role, calculated by combining compensation survey data from multiple sources weighted by job family, adjusted for market movement since the survey's effective date, and expressed as a single value representing the current competitive pay rate for the role at its documented scope and level. The market reference point is the anchor around which a salary band is constructed: the pay positioning strategy determines whether the market reference point becomes the band midpoint (P50 strategy), a point below midpoint (P75 strategy), or is adjusted for geographic differentials. It is not a salary; it is the data-driven foundation for setting one.

Market Pricing

The process of determining the competitive pay rate for a specific role by matching it to external salary survey data and producing a market reference point. Market pricing addresses external equity. It uses job architecture attributes (family, grade, scope, level) rather than job titles to identify the relevant survey position. The complete market pricing methodology has six steps: document role attributes, select survey sources by job family, match the role to survey positions using scope criteria, age the survey data to the current date, blend multiple survey sources into one market reference point, and apply the pay positioning strategy to produce the salary band. Market pricing is the input that makes reliable organizational salary benchmarking possible.

CompBldr module: Market Pricing Deep Dive.

Merit Cycle

The structured annual process for planning, approving, and distributing base salary merit increases. A complete merit cycle includes: setting the total merit budget as a percentage of payroll (US average 3.5 percent in 2026); configuring the merit matrix before the cycle opens; providing managers with their team's compensation data, compa-ratios, and budget allocations; tracking total budget consumption in real time as managers submit proposals; routing above-threshold proposals through structured approvals; and closing the cycle with documented approvals before communicating increases to employees. Organizations that run merit cycles without real-time budget tracking consistently overrun their budgets by 15 to 20 percent.

Merit Increase

A base salary adjustment given to an employee who remains in the same role and grade, awarded based on their individual performance during the most recent evaluation period. Determined by the merit matrix, which combines the employee's performance rating with their compa-ratio to produce a recommended increase percentage range. A merit increase is separate from a promotional increase (which reflects a grade change) and an equity adjustment (which corrects a structural pay gap rather than rewarding performance). Merit increases should be documented with the performance rating, pre- and post-increase compa-ratio, the merit matrix cell applied, and the approver.

Merit Matrix

A grid combining two inputs, employee performance rating and compa-ratio (pay position within the salary band), to produce a recommended merit increase percentage range. The matrix is the governance mechanism that ensures merit budget is directed toward high performers at lower pay positions rather than distributed uniformly. An employee who exceeds expectations and is paid at 82 percent compa-ratio should receive a larger increase than a peer with the same performance rating paid at 108 percent compa-ratio. The specific ranges in each matrix cell are calibrated to the organization's total merit budget percentage and can scale proportionally when the budget changes. The merit matrix is configured before the cycle opens, not during it.

P

Pay Band

Synonymous with salary band in most usage: the formal compensation range for a job grade, including minimum, midpoint, and maximum. Pay band is the more common informal term; salary band is the more formal governance term. Some organizations use pay band to refer specifically to the publicly communicated range (the number posted in a job advertisement), distinguishing it from the full internal salary band that also includes the evaluation methodology and market data that produced the range. In pay transparency discussions, the pay band and the posted salary range should be identical, derived from the same underlying salary band documentation.

CompBldr module: Salary Range Definition Guide.

Pay Compression

See Compression. The narrowing of pay differentials between employees at different experience or performance levels, most commonly caused by market salary increases outpacing internal merit budgets, new hires entering at high positions in the salary band, or merit increase practices that do not differentiate by pay position. Addressed through a documented equity adjustment program separate from the annual merit cycle.

CompBldr module: Pay Compression Guide.

Pay Equity

The principle that employees performing comparable work should receive equal compensation regardless of characteristics protected by law, including gender, race, ethnicity, age, disability status, and other protected classifications. Pay equity compliance requires a consistent job evaluation methodology that objectively determines role equivalence, salary bands applied consistently to equivalent grades, merit cycle governance that documents the basis for every pay decision, and regular pay equity audits that test whether demographic groups in comparable role clusters show statistically significant pay differences after controlling for legitimate factors. Pay equity risk is not eliminated by good intentions; it is eliminated by governed, documented, consistent processes.

CompBldr module: Pay Equity Audit Guide.

Pay Positioning Strategy

An organization's documented decision about which percentile of the external market to use as the midpoint for salary bands. A P50 strategy sets the midpoint at the market median, meaning half of comparable organizations pay more and half pay less. A P75 strategy sets the midpoint above 75 percent of comparable organizations, used for highly competitive talent pools where the organization needs to lead the market to attract and retain talent. A differentiated strategy applies different percentile targets to different job families. This decision must be documented because it is a required component of a defensible salary band and directly determines the salary ranges disclosed under pay transparency laws.

CompBldr module: Compensation Philosophy Guide.

Pay Transparency

The practice of disclosing compensation information, at minimum the salary range for a position, to candidates and employees. Minimum requirements vary by jurisdiction: California SB 1162, Colorado EPEWA, New York pay transparency law, Illinois EPOA, and Washington ESB 5761 each define what must be disclosed, to whom, and when. Beyond legal compliance, pay transparency encompasses organizational practices such as sharing compensation philosophy, pay positioning strategy, and salary band structures with employees proactively. Research consistently shows that pay transparency increases employee perception of pay fairness and reduces pay equity gaps over time by making disparities visible.

CompBldr module: California SB 1162 Guide.

Performance Share Unit (PSU)

An equity compensation award that vests based on the achievement of specific multi-year performance metrics, with the number of shares ultimately earned varying from zero to a maximum multiple of the target grant based on performance outcome. Metrics commonly used for PSU plans include total shareholder return (TSR) relative to a peer index, revenue growth, return on invested capital, and earnings per share. PSUs are the primary long-term incentive vehicle for most large US public companies because they directly link executive compensation to long-term shareholder value creation and are favored by institutional proxy advisory firms over time-vested RSUs.

CompBldr module: Executive Compensation Guide.

Point Factor Method

A formal job evaluation technique that assigns numeric scores to each role across a defined set of compensable factors, with each factor divided into scoring levels and weighted by organizational relevance. The total weighted score determines the role's grade placement. The point factor method is the most defensible formal evaluation approach because it produces results that are consistent (two evaluators scoring the same role reach the same result), documented (every score traces to a factor and level definition), auditable (the entire scoring rationale is preserved), and rebuttable (if a role's scope changes, the score can be recalculated with the same methodology). CompBldr uses JESAP, a 15-factor framework, as its point factor methodology.

Promotional Increase

A base salary adjustment given when an employee moves to a role with a higher job grade, reflecting the expanded scope, accountability, and complexity of the new role. Separate from a merit increase, which rewards performance in the current role. Promotional increases typically range from 10 to 20 percent of base salary and should be sized to bring the employee to an appropriate position within the new grade's salary band, typically the lower third of the band. The promotional increase should be processed before the merit cycle opens so the employee enters the merit cycle at the new grade with an accurate compa-ratio. Promotional and merit budgets should be tracked separately.

CompBldr module: Merit Increase vs Promotion Guide.

R

Range Penetration

A metric measuring an employee's salary position within the full salary band range, expressed as a percentage of the distance from band minimum to band maximum. Formula: Range Penetration = (Employee Salary - Band Minimum) / (Band Maximum - Band Minimum) x 100. A range penetration of 0 means the employee is at the band minimum; 100 means at the band maximum; 50 means at the exact midpoint. Range penetration answers how much room remains for future increases within the band before reaching the ceiling. Used alongside compa-ratio for complete pay positioning analysis. High range penetration combined with low performance suggests the employee may be approaching the upper limit of what the grade can accommodate.

CompBldr module: Compa-Ratio Guide.

Range Spread

The percentage difference between the minimum and maximum of a salary band, expressed as a percentage of the band midpoint. Formula: Range Spread = (Band Maximum - Band Minimum) / Band Midpoint x 100. Most organizations use 40 to 50 percent spreads for entry-level grades, 50 to 70 percent for mid-level grades, and 60 to 80 percent for senior and leadership grades. Wider spreads in senior grades accommodate the longer tenure employees typically spend within a grade before moving up, allowing meaningful merit increases over multiple cycles without reaching the band maximum. Narrower spreads in lower grades reflect smaller scope variation and shorter expected band tenure.

CompBldr module: Salary Band Building Guide.

Red-Circle Employee

An employee whose current salary exceeds the maximum of their salary band, typically resulting from a historical above-market offer, a large counter-offer increase, or a band downgrade following a restructuring that placed the employee above their new grade maximum. Red-circle employees typically have their merit increases frozen or significantly limited until the salary band catches up through annual market updates, or until the role is regraded if scope has genuinely increased. Red-circle status should be documented with the cause and a plan for resolution. Leaving red-circle situations undocumented creates pay equity risk when the demographic composition of red-circle employees is non-random.

CompBldr module: Salary Band Building Guide.

Restricted Stock Unit (RSU)

An equity compensation award promising to deliver a specified number of company shares to an employee on a defined vesting schedule, contingent on continued employment. Unlike stock options, RSUs have value regardless of whether the share price is above or below the grant date price. RSUs are the most common long-term incentive vehicle for both public technology companies and pre-IPO growth companies. The value of an RSU at grant is the share price (or 409A fair market value for private companies) times the number of units granted. At vesting, the delivered shares are taxed as ordinary income at their fair market value on the vesting date.

CompBldr module: Total Compensation Guide.

S

Salary Band

The formal compensation structure for a job grade, including the minimum, midpoint, and maximum salary values along with the job evaluation score, market benchmarking data, pay positioning strategy, and approval documentation that produced those values. All roles in the same grade share the same salary band regardless of job family or job title. A salary band is a governance document; a salary range is the minimum-to-maximum spread extracted from it for communication purposes. Every salary band should have a documented version history showing when it was last updated, what market data drove the update, and who approved the change.

CompBldr module: Salary Band Building Guide.

Salary Benchmarking

A structural exercise that evaluates whether an organization's overall compensation framework across all job families, grades, and geographies is competitive with the external market. Salary benchmarking aggregates role-level market reference points (produced through market pricing) across all job families and compares them against current salary band midpoints to determine whether the organization's pay positioning strategy is being achieved. Distinguished from market pricing, which determines the competitive rate for a specific role at a point in time. Market pricing produces the inputs that make reliable salary benchmarking possible; benchmarking produces the organizational-level competitive assessment.

CompBldr module: Benchmarking vs Market Pricing Guide.

Short-Term Incentive (STI)

A performance-based cash compensation award paid annually (or more frequently) based on the achievement of specific goals set at the beginning of the performance period. STIs include annual bonuses tied to organizational, team, or individual performance metrics, as well as commission plans for sales roles. STI targets typically range from 5 to 15 percent of base salary for individual contributors, 20 to 50 percent for senior management, and 50 to 150 percent or above for C-suite executives. The combination of base salary and target STI is called total target cash compensation or total cash compensation.

CompBldr module: Total Compensation Guide.

Sign-On Bonus

A one-time cash payment made to a new hire as part of their offer package, separate from base salary. Used to make an offer more competitive when the salary band ceiling limits base pay flexibility, to compensate a candidate for unvested equity or bonuses forfeited by leaving their current employer, or to bridge the gap between the candidate's current salary and what the organization can offer within the grade's band. Almost always accompanied by a repayment obligation requiring the employee to return the payment if they voluntarily leave within a defined period, typically 12 to 24 months. The repayment terms should be documented in a signed agreement before the bonus is paid.

Survey Blending

The methodology of combining compensation data from multiple survey sources using configured percentage weights to produce a single blended market reference point for a role. Survey blending reduces the sampling bias of any individual survey and produces a market anchor that reflects a broader cross-section of comparable organizations. Blend weights are configured by job family: a typical technology organization might use 50 percent Radford, 30 percent Mercer, and 20 percent WTW for engineering roles, while shifting to a Mercer-primary blend for finance and HR roles. The blending weights and the rationale for each are documented as part of the salary band methodology for each job family.

T

Total Cash Compensation (TCC)

The sum of an employee's annual base salary and target short-term incentive for the year. Formula: TCC = Annual Base Salary + (STI Target Percentage x Annual Base Salary). TCC is the most common measure of current-year cash value used for competitive benchmarking of non-executive roles. For example, a Software Engineer with a $130,000 base salary and a 10 percent target bonus has a TCC of $143,000. TCC does not include long-term incentive value, employer-paid benefits, or other non-cash compensation components.

Total Compensation

The complete economic value of everything an employee receives in exchange for their work during a given year: base salary, short-term incentives (annual bonus, commission), long-term incentives (annualized equity grant value), employer-paid benefits (health insurance, retirement contributions, paid time off), and additional perquisites. The full total compensation number for a Software Engineer with a $130,000 base, $13,000 target bonus, $20,000 annualized RSU value, and $24,500 in employer-paid benefits is $187,500. Total compensation is the most complete measure of an employment relationship's economic value and is the appropriate basis for competitive benchmarking when evaluating offer competitiveness.

CompBldr module: Total Compensation Guide.

Total Direct Compensation (TDC)

The sum of total cash compensation (base salary plus target STI) and the annualized value of long-term incentive grants. Formula: TDC = TCC + Annualized LTI Value. TDC excludes employer-paid benefits. For roles where equity is a significant component of the total package (senior engineers, executives, pre-IPO employees), TDC is the relevant benchmarking measure because it captures the full cash and equity value the employee receives each year. Salary benchmarking that uses base salary or TCC for roles with significant LTI systematically understates total compensation and produces misleading competitive assessments.

Total Rewards

The comprehensive framework encompassing all financial and non-financial elements of the employment value proposition. Financial components include base salary, short-term incentives, long-term incentives, and employer-paid benefits. Non-financial components include career development, flexible work arrangements, organizational culture, purpose and mission alignment, recognition programs, and wellbeing initiatives. Total rewards is a strategic lens for evaluating and communicating the full value of employment rather than simply the cash and equity components. CompBldr's Total Rewards Statements module enables organizations to communicate every employee's complete annual total rewards value in a clear, personalized statement.

CompBldr module: Total Rewards Statements Module

U

Unadjusted Pay Gap

The raw difference in average pay between demographic groups, calculated without controlling for any legitimate pay factors such as job grade, tenure, performance rating, or location. For example, if women at an organization earn an average of $0.83 for every $1.00 earned by men across the entire organization, the unadjusted gap is 17 percent. The unadjusted gap reflects a combination of representation differences (occupational and grade distribution), hours worked, and potential pay discrimination. It does not isolate discrimination but provides important information about systemic patterns in the workforce. Both the unadjusted gap and the adjusted gap should be calculated and reported in a complete pay equity audit.

CompBldr module: Pay Equity Audit Guide.

V

Vesting Schedule

The timeline over which an employee earns the right to the full value of a compensation award, typically applied to equity grants and deferred compensation. Common vesting schedules for RSUs and stock options are four-year vesting with a one-year cliff (25 percent vests after 12 months of service, then equal monthly or quarterly vesting for the remaining 36 months). Performance share units vest at the end of the performance period (typically three years) with the number of shares earned determined by performance. Vesting schedules serve a retention function: an employee who leaves before their awards vest forfeits the unvested portion.

CompBldr module: Total Compensation Guide.

W

Wage Growth Rate

The annual percentage increase in compensation for a specific role, job family, or labor market segment, used as the aging factor when adjusting historical compensation survey data to reflect current market conditions. Wage growth rates vary significantly by sector: technology and AI engineering roles have experienced wage growth rates of 4 to 8 percent annually in recent years, while stable administrative functions have seen 2 to 3 percent. Using a flat organizational merit increase rate as a proxy for market wage growth when aging survey data is a common error that systematically underpays in fast-moving talent markets. Sector-specific wage growth rates from Mercer, WTW, and BLS employment cost indices should be used for aging calculations.

CompBldr module: Market Pricing Methodology.

Every Term in This Glossary Connects to a CompBldr Module

Job architecture, job evaluation, market benchmarking, salary band builder, merit cycle management, pay equity monitoring, and total rewards statements: CompBldr is the platform where these terms become governed processes rather than concepts in a document. Book a 15-Minute Demo.