Total rewards and compensation glossary

Accelerated vesting

Accelerated vesting is a plan provision that makes unvested equity or deferred awards vest earlier than the normal schedule, usually on a defined event such as a change in control, death, disability or termination without cause. Single-trigger acceleration needs only the event; double-trigger acceleration needs the event plus a qualifying job loss. Investors and remuneration committees scrutinise acceleration terms closely because they decide who keeps value in a sale.

Read more: ESOPs and equity plans

Allowance

An allowance is a fixed cash payment made on top of base salary for a specific purpose, such as housing, transport, meals, mobile phone or a hardship location. Allowances are common in India, the Middle East and parts of Asia, where they can make up a large share of fixed pay. Whether an allowance counts towards overtime, pension, gratuity or statutory contributions depends on local law, so the label alone settles nothing.

Annual incentive plan

An annual incentive plan (AIP) is a variable pay programme that pays cash once a year based on performance against goals set at the start of the year. Typical design elements are eligibility, a target award as a percentage of salary, the performance measures and weights, a funding formula and a payout curve between threshold and maximum. It is the most common form of short-term incentive.

Read more: Incentive plans

Base salary

Base salary is the fixed amount an employee is paid for doing the job, before any bonus, incentive, allowance or benefit. It is normally expressed as an annual figure, although some markets quote monthly pay. Base salary is the anchor for most other reward elements: target bonuses, pension contributions, severance and many statutory benefits are calculated as a multiple or percentage of it.

Benchmark job

A benchmark job is a role that is common enough across employers to be matched reliably to salary survey data, such as a payroll specialist or a mid-level software engineer. Organisations price their benchmark jobs against the market first, then slot non-benchmark roles into the structure through job evaluation or comparison with the benchmarks. A good benchmark set covers every level and every major job family.

Read more: Compensation consulting

Benefits

Benefits are the non-cash or indirect elements of reward that protect employees and their families, such as health insurance, life and disability cover, retirement plans and paid leave. Some benefits are mandated by law in a given country; others are voluntary and used to compete for talent. Benefits are one of the core elements in most total rewards models, alongside pay, well-being, development and recognition.

Read more: Total rewards guide

Bonus

A bonus is a one-off cash payment on top of base salary. It can be discretionary, decided after the event with no promised formula, or non-discretionary, paid under a pre-announced plan with defined measures. The distinction matters: in several jurisdictions a non-discretionary bonus can create a contractual entitlement or must be included in overtime or statutory calculations, while a discretionary bonus usually does not.

Read more: Incentive plans

Broadbanding

Broadbanding is a salary structure that collapses many narrow pay grades into a few wide bands, often with range spreads of 100 per cent or more. It gives managers flexibility to move pay without a promotion and suits flatter organisations. The trade-off is weaker internal guidance: without zones or market reference points inside each band, pay decisions can drift and become hard to explain under pay transparency rules.

Read more: Salary band calculator

Buy-out award

A buy-out award compensates a new hire for unvested bonus or equity they forfeit by leaving their previous employer. Good practice is to replace value like for like: similar form, similar vesting dates and similar performance conditions, rather than paying it all in cash on day one. Buy-outs are also where offer negotiations most often drift, so value them with the same assumptions used for the rest of the package.

Cash-based long-term incentive

A cash-based long-term incentive pays cash rather than shares at the end of a multi-year performance period, typically three years. Private companies, subsidiaries of foreign groups and organisations that cannot issue equity use them to create long-term focus without diluting ownership. The plan still needs clear measures, a payout curve and forfeiture rules on leaving, or it simply becomes a deferred bonus.

Read more: Incentive plans

CEO pay ratio

The CEO pay ratio compares the chief executive’s total pay with that of the wider workforce. In the US, SEC rules require most listed companies to disclose the ratio of CEO pay to the median employee. In the UK, quoted companies with more than 250 UK employees report the ratio against the 25th, 50th and 75th percentile UK employee. The figure is a governance signal, not a pay-setting tool.

Source: SEC press release 2015-160 (pay ratio disclosure); The Companies (Miscellaneous Reporting) Regulations 2018

Change in control

A change in control (CIC) is a defined corporate event, usually a merger, acquisition or sale of most of the company’s assets or voting shares, that triggers special treatment under pay and equity plans. CIC provisions decide whether unvested awards vest, are assumed by the buyer or are cashed out, and whether executives receive enhanced severance. Payments made on a CIC are often called golden parachutes.

Read more: ESOPs and equity plans

Clawback

A clawback is the employer’s right to recover incentive pay that has already been paid or vested. US listed companies must have a policy to recover erroneously awarded incentive pay from executive officers after an accounting restatement, looking back three completed fiscal years. UK banking rules introduced in 2015 made variable pay of material risk takers subject to clawback for seven years from award, longer for some senior managers; the regulators revised other parts of these rules in October 2025, so check the current rulebook. Compare malus, which applies before vesting.

Source: SEC Release 33-11126 (recovery of erroneously awarded compensation); FCA and PRA announcement of new remuneration rules (2015)

Cliff vesting

Cliff vesting means nothing vests until a set date, after which a block vests at once. A common start-up pattern is a one-year cliff followed by monthly or quarterly vesting, so someone who leaves within the first year keeps no equity. Cliffs protect the cap table from very short tenures but create a sharp retention point; expect some leavers immediately after each cliff date.

Read more: ESOPs and equity plans

Commission

A commission is variable pay calculated as a share of sales, revenue or margin that an individual or team generates. Sales compensation plans combine a base salary with commission or a target incentive, set out in a pay mix such as 60:40 or 70:30. Key design choices are the quota, the rate, accelerators above quota, caps, and the crediting rules for shared deals.

Read more: Incentive plans

Compa-ratio

Compa-ratio is an employee’s salary divided by the midpoint of their pay range, shown as a ratio or percentage. A compa-ratio of 1.00 (100 per cent) means pay sits exactly at the midpoint; 0.90 means 10 per cent below it. Average compa-ratios by grade, team or gender are a quick diagnostic of how pay is positioned against the organisation’s own market target.

Read more: Salary band calculator

Compensable factors

Compensable factors are the job characteristics an organisation values and pays for, such as knowledge, problem solving, accountability, scope of impact and working conditions. In a point-factor job evaluation scheme, each factor carries points and weights, and a role’s total score places it in a grade. Choosing and weighting the factors is effectively a statement of what the organisation rewards.

Compensation committee

A compensation committee is the board committee, usually of independent non-executive directors, that sets executive pay policy and approves pay for the chief executive and other senior leaders. In the UK and many Commonwealth countries it is called the remuneration committee. It also oversees incentive plan design, equity plan dilution and, increasingly, pay practices across the wider workforce.

Compensation philosophy

A compensation philosophy is a short statement of how an organisation pays people: what it pays for, where it positions pay against the market, how fixed and variable pay are balanced, and how pay is governed and communicated. It is the reference point for every policy and individual pay decision, and the document that makes those decisions defensible to employees and regulators.

Read more: Compensation philosophy

Cost of living adjustment

A cost of living adjustment (COLA) is a general pay increase intended to offset inflation, given to all or most employees regardless of performance. It differs from a merit increase, which varies with performance, and from a market adjustment, which corrects a role’s position against the market. Some public sector and union agreements index pay to inflation; most private employers fold inflation into one merit budget instead.

Cost to company

Cost to company (CTC) is the total annual cost an employer incurs for an employee, commonly quoted in Indian offer letters. It typically includes base salary, allowances, employer retirement contributions, gratuity provision, insurance premiums and target variable pay. CTC is not take-home pay: an offer with a high CTC can still deliver modest monthly cash if a large share is variable, deferred or statutory.

Deferred compensation

Deferred compensation is pay earned in one period but paid in a later one, such as deferred bonuses, long-term cash plans or executive savings plans. Deferral supports retention and lets risk adjustment such as malus operate. In the US, non-qualified deferred compensation must comply with Section 409A of the Internal Revenue Code or face accelerated taxation plus an additional 20 per cent tax.

Source: IRS Nonqualified Deferred Compensation Audit Technique Guide

Discretionary bonus

A discretionary bonus is one where the employer decides whether to pay, and how much, after the performance period, without a pre-committed formula. Discretion lets leaders reflect context a scorecard misses, but it weakens line of sight for employees and can expose the organisation to bias claims. Courts in several countries also expect discretion to be exercised rationally and in good faith, not arbitrarily.

Double trigger

A double trigger requires two events before equity vests or severance is paid, typically a change in control followed by termination without cause or resignation for good reason within a set period. It is now common in executive contracts because it avoids rewarding executives simply for a sale while still protecting them if the buyer removes them. A single trigger requires only the first event.

Read more: ESOPs and equity plans

Employee stock option plan

An employee stock option plan (ESOP) grants employees the right to buy company shares at a fixed exercise price after the options vest. In India, SEBI rules require a minimum vesting period of one year for listed companies, and employees are taxed at exercise and again on sale. In the US, ESOP also commonly means an employee stock ownership plan, a different retirement vehicle, so define the term in any cross-border document.

Read more: ESOPs and equity plans. Source: SEBI investor guide to ESOPs

Employee stock purchase plan

An employee stock purchase plan (ESPP) lets employees buy company shares through payroll deductions, usually at a discount to market price over an offering period. Broad eligibility makes it a participation tool rather than a targeted retention tool. Tax treatment varies by country and plan type, so multinationals often run a single global plan with local sub-plans or country-specific adjustments.

Read more: ESOPs and equity plans

Employee value proposition

The employee value proposition (EVP) is the overall deal an employer offers in return for an employee’s skills and effort: pay and benefits, but also the work itself, career growth, culture, flexibility and purpose. Total rewards is the tangible core of the EVP. A credible EVP is specific to the organisation and backed by evidence from employee research, not a list of generic claims.

Read more: Total rewards strategy

End-of-service gratuity

End-of-service gratuity is a lump sum payable to employees when employment ends, required by law across much of the Gulf. In the UAE private sector, expatriate employees with at least one year of service receive 21 days’ basic wage for each of the first five years and 30 days’ for each further year, capped at two years’ wage. Because it is based on basic pay, the basic-to-allowance split drives the liability.

Source: UAE Government portal: end-of-service benefits

Enterprise Management Incentives

Enterprise Management Incentives (EMI) is a UK tax-advantaged share option scheme for smaller, independent trading companies. An employee can hold EMI options over shares worth up to £250,000 at grant. From 6 April 2026 the company-wide limit on unexercised options rose to £6 million, and the gross assets and headcount limits were also raised. Options must be notified to HMRC to keep their tax advantages.

Read more: ESOPs and equity plans. Source: GOV.UK: Enterprise Management Incentives; GOV.UK: expanding the EMI eligibility limits

Equal pay

Equal pay is the legal principle that people doing the same work, or work of equal value, must receive equal pay regardless of sex. It is broader than identical jobs: different roles can be judged of equal value on factors such as skill, effort, responsibility and working conditions. The EU Pay Transparency Directive requires employers to use objective, gender-neutral criteria to compare the value of work.

Read more: Pay equity. Source: Directive (EU) 2023/970 on pay transparency

Exempt and non-exempt employees

Exempt and non-exempt are US classifications under the Fair Labor Standards Act. Non-exempt employees must receive overtime pay for hours over 40 in a workweek; exempt employees do not. To be exempt, an employee generally must be paid a predetermined salary, meet a minimum salary level and perform qualifying executive, administrative or professional duties. Job titles alone never decide the classification.

Source: US Department of Labor Fact Sheet #17A

Exercise price

The exercise price, or strike price, is the fixed price per share an option holder pays to buy shares when exercising a stock option. It is normally set at the fair market value on the grant date, so the option only has value if the share price rises. Setting it below fair market value can trigger adverse tax treatment, including under Section 409A in the US.

Read more: ESOPs and equity plans

Fixed pay

Fixed pay is the guaranteed portion of cash compensation that does not vary with performance: base salary plus any guaranteed allowances. It provides income security and is the basis for many statutory calculations. The ratio of fixed to variable pay, the pay mix, is one of the central choices in a compensation philosophy and usually shifts towards variable pay at more senior levels.

Read more: Compensation philosophy

Flexible benefits

Flexible benefits let employees choose how to spend a benefits allowance or credit across options such as additional health cover, dental, life insurance, wellness, childcare or extra leave. Sometimes called a cafeteria plan, the approach recognises that a single fixed package suits a diverse workforce poorly. The cost is administrative complexity and the need for clear communication so choices are well informed.

Read more: Total rewards guide

Gainsharing

Gainsharing is a group incentive that shares the financial value of measurable productivity or cost improvements with the employees who produced them, usually a plant, unit or team. Payouts are funded by the savings themselves, so the plan is self-financing. It works best where employees can see and influence the measures, such as yield, scrap rates or labour hours per unit.

Read more: Incentive plans

Gender pay gap

The gender pay gap is the difference between average (mean or median) pay for men and women across an organisation, regardless of role. It is not the same as unequal pay for equal work; a gap often reflects fewer women in senior or higher-paid roles. UK employers with 250 or more employees must publish their gap annually, and the EU Pay Transparency Directive introduces reporting from 2027.

Read more: Pay equity. Source: Equality Act 2010 (Gender Pay Gap Information) Regulations 2017; Directive (EU) 2023/970 on pay transparency

Grade

A grade, or pay grade, is a level in a salary structure that groups jobs of similar internal value or market worth, each with its own pay range. Jobs are placed in grades through job evaluation or market pricing. Fewer, wider groupings are usually called bands, as in broadbanding.

Read more: Salary band calculator

Graded vesting

Graded vesting releases an award in instalments over time, for example 25 per cent a year over four years, rather than all at once. It produces a smoother retention effect than cliff vesting because an employee always has the next tranche to wait for. Many plans combine the two: a one-year cliff, then monthly or quarterly graded vesting for the remainder.

Read more: ESOPs and equity plans

Grant date

The grant date is the date on which an equity or incentive award is legally made to an employee, after all approvals are complete and the key terms are fixed. It matters for accounting, for setting the exercise price of options, for tax and for the start of the vesting clock. Back-dating grants to a lower share price has caused serious regulatory problems in the past.

Read more: ESOPs and equity plans

Gratuity

In India, gratuity is a statutory lump sum paid on leaving after at least five years of continuous service, calculated as 15 days’ wages for each completed year. Under the Payment of Gratuity Act, the maximum amount was raised to ₹20 lakh from 29 March 2018. The Code on Social Security, 2020, effective from 21 November 2025, now carries these provisions, so check the current rules before calculating liabilities.

Source: Press Information Bureau: the four labour codes made effective

Green-circle rate

A green-circle rate is a salary that sits below the minimum of the employee’s pay range. It usually follows a promotion, a new range structure or a market movement. Standard practice is to bring green-circled employees up to the range minimum, either immediately or in planned steps, because a persistent green circle signals underpayment and can become a pay equity risk.

Read more: Salary band calculator

Incentive stock option

An incentive stock option (ISO) is a US stock option that can qualify for favourable tax treatment if holding period and other statutory conditions are met. Only employees can receive ISOs. To the extent that the value of shares first exercisable by an employee in any calendar year exceeds $100,000, measured at grant, the excess is treated as a non-qualified option.

Read more: ESOPs and equity plans. Source: 26 U.S. Code § 422 (incentive stock options)

Internal equity

Internal equity is the fairness of pay relationships between jobs and people inside the same organisation. It asks whether roles of similar value are paid similarly and whether differences can be explained by objective factors such as level, performance or location. It pulls against external competitiveness when hot skills command premiums, and a compensation philosophy should say how the two are balanced.

Read more: Pay equity

Job architecture

Job architecture is the framework that organises every role into job families, sub-families and career levels with consistent titles and level descriptions. It is the foundation for salary structures, market pricing, career paths and pay transparency disclosures. Without it, organisations cannot reliably compare roles of equal value, which the EU Pay Transparency Directive now expects employers to do.

Read more: Pay transparency

Job evaluation

Job evaluation is a systematic method for ranking jobs by their relative value to the organisation, independent of the people in them. Methods include whole-job ranking, classification against level descriptions and point-factor schemes that score compensable factors. Job evaluation supports internal equity and equal pay defences; market pricing then attaches money to the resulting hierarchy.

Read more: Compensation consulting

Job family

A job family is a group of jobs with similar work and skills at different levels, such as finance, engineering or sales. Job families can carry their own salary structures where their markets differ significantly, a common approach for technology roles. Families are the horizontal axis of a job architecture; career levels are the vertical one.

Living wage

A living wage is a pay rate calculated to cover a basic but acceptable standard of living in a particular place, usually higher than the statutory minimum wage. Rates are set by independent bodies or researchers rather than by law in most countries, and employers adopt them voluntarily. Global employers increasingly check their lowest-paid roles, and their suppliers’, against living wage benchmarks.

Long-term incentive

A long-term incentive (LTI) rewards performance or retention over more than one year, typically three to four, and is usually delivered in equity: stock options, restricted stock units or performance share units. Cash LTIs are used where equity is not available. LTIs align senior employees with shareholders and make up a large share of executive pay in listed companies.

Read more: Incentive plans

Lump-sum merit increase

A lump-sum merit increase is a one-off cash payment given in place of, or alongside, a permanent salary increase. It is common for employees at or above the top of their range, where a base increase would worsen a red-circle position. Because it does not compound into future salary, it costs less over time, but employees often value it less than a raise.

Read more: Salary band calculator

Malus

Malus is the reduction or cancellation of deferred or unvested variable pay before it vests or is paid, usually because of misconduct, a material financial misstatement, a risk management failure or a significant downturn. It is easier to apply than clawback because no money needs to be recovered from the individual. UK banking remuneration rules use malus alongside clawback as forms of risk adjustment for material risk takers.

Source: FCA and PRA announcement of new remuneration rules (2015)

Market adjustment

A market adjustment is a salary increase given to correct an employee’s or role’s position against the external market, separate from merit or promotion increases. It is used when market rates for a skill rise faster than the normal budget allows, or when an audit finds employees paid well below their range. Funding it from a separate pot keeps the merit budget for performance.

Market pricing

Market pricing is the process of setting pay levels by matching jobs to reliable external salary survey data and analysing percentiles such as the 25th, 50th and 75th. Quality depends on accurate job matching, appropriate peer groups by industry, size and location, and consistent ageing of data to a common date. It is the most widely used method for building salary structures.

Read more: Compensation consulting

Merit increase

A merit increase is a permanent rise in base salary awarded for individual performance, usually in an annual review cycle. Its size is typically guided by a merit matrix that combines performance rating with position in range. Because merit increases compound into future pay and pensions, they are one of the most expensive decisions in any reward cycle.

Read more: Salary band calculator

Merit matrix

A merit matrix is a grid that sets guideline salary increases by performance rating on one axis and position in range, often compa-ratio quartile, on the other. Higher performers lower in their range receive the largest increases; strong performers already high in their range receive smaller ones. This moves pay towards the midpoint for fully competent performers and controls cost.

Read more: Salary band calculator

Midpoint

The midpoint is the middle value of a pay range and usually represents the market rate for a fully competent person in the role, often anchored to the organisation’s target percentile, such as the median. It is the reference point for compa-ratio and for most pay decisions. A range with a minimum of 80,000 and a maximum of 120,000 has a midpoint of 100,000.

Read more: Salary band calculator

Midpoint progression

Midpoint progression, or midpoint differential, is the percentage difference between the midpoints of adjacent grades. It is calculated as the higher midpoint minus the lower midpoint, divided by the lower midpoint. Progression that is too small makes promotions meaningless; too large and jobs on grade boundaries become hard to place. Differentials commonly widen at senior levels.

Read more: Salary band calculator

Minimum wage

A minimum wage is the lowest hourly, daily or monthly pay an employer can legally offer, set by national or regional law. Many countries set multiple rates by age, region, skill level or industry, and update them annually. Global employers need a process to track every applicable rate, including sub-national rates such as US state and city minimums and Indian state rates.

Non-qualified stock option

A non-qualified stock option (NSO or NQSO) is a US stock option that does not meet the statutory requirements for an incentive stock option. The spread between market value and exercise price is generally taxed as ordinary income at exercise, and the employer generally receives a corresponding deduction. NSOs can be granted to employees, directors, consultants and advisers, which makes them more flexible than ISOs.

Read more: ESOPs and equity plans

Off-cycle increase

An off-cycle increase is a salary change made outside the normal annual review, usually for a promotion, a retention risk, a significant change in role or a market correction. Clear rules on who can approve off-cycle increases, and how they interact with the next cycle, prevent them from becoming a back door for managers who negotiate hardest.

Pay compression

Pay compression occurs when pay differences between employees with different levels of experience, skill or seniority become too small, often when new hires are paid market rates higher than existing staff in the same roles. Inversion is the extreme form, where newer or junior employees earn more than experienced ones. Left alone, compression drives regretted attrition among experienced employees.

Read more: Pay equity

Pay equity

Pay equity is the principle that employees should be paid fairly relative to one another, with any differences explained by legitimate factors such as role, level, performance, experience or location rather than gender, ethnicity or other protected characteristics. A pay equity audit uses statistical analysis, usually regression, to identify unexplained gaps and remediate them.

Read more: Pay equity

Pay for performance

Pay for performance is a reward approach that links a meaningful part of pay to measured individual, team or company results through merit increases, bonuses and long-term incentives. It works when measures are within employees’ influence, targets are credible and the payout difference between strong and average performance is large enough to notice.

Read more: Incentive plans

Pay mix

Pay mix is the proportion of fixed to variable pay in a role’s target total compensation, such as 80:20 for a manager or 50:50 for a sales executive. The more an employee can directly influence results, the more variable pay the mix usually contains. For executives, the mix also splits variable pay between short-term and long-term incentives.

Read more: Compensation philosophy

Pay range

A pay range sets the minimum, midpoint and maximum salary for a grade or job. The minimum is for someone new to the role, the midpoint for full competence and the maximum for sustained top contribution. Pay transparency laws in several US states and the EU now require employers to share pay ranges or starting pay information with candidates.

Read more: Salary band calculator. Source: Directive (EU) 2023/970 on pay transparency

Pay transparency

Pay transparency is the degree to which pay information is shared with candidates, employees and the public. It ranges from disclosing pay ranges in job adverts to publishing gender pay gaps. The EU Pay Transparency Directive had to be transposed by member states by 7 June 2026, with gender pay gap reports due from employers with 150 or more workers from 7 June 2027.

Read more: Pay transparency. Source: Directive (EU) 2023/970 on pay transparency

Percentile

A percentile shows the point in a set of market data below which a given share of values fall. The 50th percentile (P50, the median) is the middle; the 25th (P25) and 75th (P75) mark the lower and upper quartiles. Organisations express their market position in percentiles, for example targeting P50 for most roles and P75 for scarce skills.

Read more: Compensation philosophy

Performance share unit

A performance share unit (PSU) is an equity award that converts into shares only if specified performance goals are met over a multi-year period, typically three years. The number of shares delivered can range from zero to a maximum such as 150 or 200 per cent of target, depending on results. Measures often include total shareholder return, earnings or return on capital.

Read more: Incentive plans

Perquisites

Perquisites, or perks, are non-cash benefits typically reserved for executives or particular roles, such as company cars, club memberships, security, travel or financial planning. In many countries perks are taxable to the employee, and listed companies must disclose executive perks above certain thresholds. Investors increasingly challenge perks that have no clear business purpose.

Phantom stock

Phantom stock is a cash award whose value tracks the company’s share price or valuation, without issuing actual shares. Employees receive the value of a notional number of shares, sometimes including dividends, when the award vests or on a liquidity event. It suits private companies and family businesses that want an ownership-like incentive without diluting shareholders.

Read more: ESOPs and equity plans

Promotion increase

A promotion increase is the salary rise given when an employee moves to a higher grade or level. Guidelines usually set a percentage range, or require the new salary to reach at least the minimum of the new range. Promotion budgets are often managed separately from merit budgets so that promotions are not squeezed by the merit cycle.

Read more: Salary band calculator

Range penetration

Range penetration shows where a salary sits within its pay range, calculated as salary minus range minimum, divided by range maximum minus range minimum. Zero per cent means pay is at the minimum, 50 per cent at the midpoint of a symmetrical range and 100 per cent at the maximum. It is more intuitive than compa-ratio for explaining progression to employees.

Read more: Salary band calculator

Range spread

Range spread is the width of a pay range, calculated as the maximum minus the minimum, divided by the minimum. A range of 80,000 to 120,000 has a 50 per cent spread. Spreads typically widen with seniority because senior roles take longer to master and performance differences are larger. Broadbanding uses much wider spreads than traditional grades.

Read more: Salary band calculator

Red-circle rate

A red-circle rate is a salary above the maximum of the employee’s pay range. Common causes are demotion, a restructure, a new salary structure or long tenure with steady merit increases. Typical treatments are to freeze base pay, pay increases as lump sums, or move the employee to a higher-graded role. Red circles should be documented and reviewed annually.

Read more: Salary band calculator

Remuneration committee

Remuneration committee is the UK and Commonwealth term for the board committee that sets executive pay policy and individual executive packages, equivalent to a US compensation committee. It is usually made up of independent non-executive directors. In UK quoted companies, its remuneration policy is subject to a binding shareholder vote at least every three years, and its annual report on pay to an advisory vote.

Source: Enterprise and Regulatory Reform Act 2013 (directors’ remuneration provisions)

Restricted stock unit

A restricted stock unit (RSU) is a promise to deliver shares, or their cash value, once vesting conditions are met, usually continued service. Unlike options, RSUs keep value even if the share price falls, so they deliver more certain value. Employees are typically taxed when the units vest and shares are delivered. RSUs are the most common equity vehicle in listed technology companies.

Read more: ESOPs and equity plans

Retention bonus

A retention bonus is a payment conditional on an employee staying for a defined period, often through a transaction, restructuring or critical project. It is usually paid at the end of the period or in instalments, and forfeited or repayable on early resignation. Good retention bonuses are targeted at a short list of truly critical people, not spread thinly.

Read more: Incentive plans

Salary structure

A salary structure is the set of grades or bands and their pay ranges that an organisation uses to manage base salary. It is built from market pricing and job evaluation, with design choices on the number of grades, range spreads, midpoint progression and whether different job families or geographies need separate structures. It should be reviewed against the market annually.

Read more: Salary band calculator

Say on pay

Say on pay is a shareholder vote on executive compensation. In the US, Dodd-Frank requires listed companies subject to the proxy rules to hold an advisory vote at least once every three years, and a vote on frequency at least once every six years. UK quoted companies hold a binding vote on remuneration policy at least every three years and an annual advisory vote on the remuneration report.

Source: SEC press release 2011-25 (say-on-pay rules); Enterprise and Regulatory Reform Act 2013 (directors’ remuneration provisions)

Section 409A

Section 409A of the US Internal Revenue Code governs non-qualified deferred compensation, including deferral elections and the timing of payments. Plans that fail in form or operation expose employees to immediate taxation of deferred amounts, interest and an additional 20 per cent tax. Stock options granted at an exercise price below fair market value can be caught, which is why private companies obtain independent 409A valuations.

Source: IRS Nonqualified Deferred Compensation Audit Technique Guide

Section 83(b) election

A Section 83(b) election lets a US taxpayer who receives restricted shares choose to be taxed on their value at the time of grant rather than at vesting. It must be filed with the IRS no later than 30 days after the property is transferred, and it cannot be revoked except in narrow circumstances. It is common for founders and early employees receiving low-value shares.

Source: IRS Form 15620, Section 83(b) Election

Short-term incentive

A short-term incentive (STI) is a variable pay plan that rewards performance over one year or less, paid in cash. Annual bonus plans, quarterly sales incentives and team or project awards are all short-term incentives. Their effectiveness depends on clear measures, credible targets and a payout curve that rewards real outperformance more than a near miss.

Read more: Incentive plans

Sign-on bonus

A sign-on bonus is a one-off payment to a new hire on joining, used to close a gap in the offer, compensate for lost bonus or speed up an acceptance. It usually comes with a repayment clause if the employee leaves within a set period, often one or two years. Using sign-on bonuses instead of fixing base pay can mask an uncompetitive salary structure.

Stock appreciation right

A stock appreciation right (SAR) gives the holder the increase in value of a set number of shares between grant and exercise, paid in cash or shares, without paying an exercise price. SARs deliver option-like value with less dilution when settled in shares, and without share issuance when settled in cash. Indian listed companies may offer SAR schemes under SEBI regulations.

Read more: ESOPs and equity plans

Superannuation

Superannuation is Australia’s compulsory retirement savings system, to which employers must contribute a percentage of eligible employees’ ordinary time earnings. The super guarantee rate rose to 12 per cent from 1 July 2025. The term is also used in India for employer pension or retirement schemes, so check the context when reading cross-border reward documents.

Source: Australian Taxation Office: super guarantee rate

Sweat equity

Sweat equity refers to shares issued to employees or directors at a discount or for consideration other than cash, in recognition of know-how, intellectual property or value-adding contributions. In India it is a specific legal instrument regulated under company law and, for listed companies, SEBI regulations with limits on how much can be issued. Informally, the term describes founders’ equity earned through unpaid work.

Read more: ESOPs and equity plans

Target bonus

A target bonus is the bonus an employee would receive for fully meeting expectations, expressed as a percentage of base salary or a fixed amount. Actual payout depends on performance against the plan’s measures and can range from zero below threshold to a cap such as 200 per cent of target. Target bonus levels typically increase with grade.

Read more: Incentive plans

Threshold, target and maximum

Threshold, target and maximum are the three key points on an incentive payout curve. Threshold is the minimum performance that earns any payout, target earns the planned award, and maximum caps the payout for exceptional results. The slope between them signals how much the organisation values outperformance and protects against paying for results that would have happened anyway.

Read more: Incentive plans

Total cash compensation

Total cash compensation is base salary plus all cash incentives and bonuses for a year. It can be measured at target, what an employee would receive for meeting expectations, or as actual, what was paid. Market pricing commonly compares both base salary and target total cash, because two roles with the same base can have very different bonus potential.

Total compensation

Total compensation is total cash compensation plus the value of long-term incentives and, in some definitions, benefits. For executive roles it is often called total direct compensation when it includes base salary, annual incentive and the grant value of long-term incentives. Benchmarking at this level shows whether an overall package is competitive even when components differ.

Read more: Total rewards guide

Total remuneration

Total remuneration is the full value of everything an employee receives for their work: base pay, variable pay, long-term incentives, benefits and perquisites. It is the British and international equivalent of total compensation, though some organisations use it more broadly to include employer retirement and insurance costs. Defining the term in each document avoids misleading comparisons.

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Total rewards

Total rewards is everything an employer provides that employees value in return for their work: pay, benefits, well-being, career development and recognition. WorldatWork’s total rewards model describes five elements: compensation, benefits, well-being, careers and recognition. The concept matters because employees make decisions based on the whole deal, not salary alone, and many valued elements cost little.

Read more: Total rewards guide. Source: WorldatWork total rewards model guide

Total rewards statement

A total rewards statement is a personalised document showing an employee the full value of their package: base salary, bonus, equity, benefits, retirement contributions and other rewards. Many employees underestimate the value of benefits and employer contributions, so the statement makes the full investment visible and supports retention and pay conversations.

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Total shareholder return

Total shareholder return (TSR) measures the combined return to shareholders from share price change and dividends over a period. It is a common performance measure in performance share plans, often as relative TSR, where payout depends on the company’s ranking against a peer group or index. Relative TSR rewards outperformance of the market rather than a rising market.

Read more: Incentive plans

Variable pay

Variable pay is any compensation that depends on performance and is not guaranteed: bonuses, commissions, short-term incentives, profit sharing and long-term incentives. It lets organisations share success and manage costs when results fall. Variable pay only changes behaviour if employees understand the measures and believe their effort can move them.

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Vesting

Vesting is the process by which an employee earns the right to keep an equity award, deferred bonus or employer retirement contribution over time or on meeting conditions. Unvested amounts are generally forfeited on leaving. Vesting schedules may be time-based, as in cliff or graded vesting, performance-based, or a combination.

Read more: ESOPs and equity plans

Wages under the Code on Wages

In India, the Code on Wages, 2019 introduced a uniform definition of wages that applies across the four labour codes effective from 21 November 2025. Certain components such as specific allowances are excluded, but where exclusions exceed 50 per cent of total remuneration the excess is added back to wages. This affects gratuity, provident fund and other statutory calculations.

Source: Press Information Bureau: the four labour codes made effective

Well-being

Well-being in total rewards covers programmes supporting employees’ physical, mental, emotional and financial health, such as employee assistance programmes, mental health support, flexible working, wellness benefits and financial education. It has moved from a benefit add-on to a core element of total rewards in many models. Measurement should focus on usage and outcomes, not just spending.

Read more: Total rewards guide