Compensation Terms

Blackout Period

Refers to the period of time, determined by the company, during which certain designated company employees, usually the insiders, are forbidden to initiate transactions in the company stock. Usually stated as a number of days before and after the release of a company's quarterly and annual results

Bonus

Reflects your level of responsibility in the organization, making up a larger portion of your total compensation as you take on more responsibility.

Claw-Back Provision

Provision in a compensation plan which allows a company to recover a bonus award under certain conditions.

Cliff Vesting

A provision that calls for the full vesting of a benefit after a pre-determined time period has elapsed; there is no gradual or incremental vesting.

Deferred Compensation

Any arrangement that postpones pay can be considered "deferred compensation".  But deferred compensation is a term that usually refers to a specific type of fringe benefit offered by an employer.  Under most circumstances, the benefit consists of retirement pay offered to the employee in place of current cash.  It may also refer to an employment agreement under which some of an employee's remuneration is delayed for a specific number of years or until the employee or the company reaches a particular level of productivity or profitability.

Golden Parachute

A severance benefit afforded to some executives to provide protection and security in the event that the organization is acquired, or they leave the company. Golden parachutes provide an executive with a payment multiples of his/her annual salary plus bonuses, immediate vesting of stock, extra pension credits, outplacement assistance, continuation of health and welfare benefits, and other perquisites.

Hazard Pay

The difference in pay that is used to compensate an employee for working in a dangerous or undesirable condition.

Human Resources Audit

Examines the HR functions policies, procedures, documentation, systems, and practices. The objective of the Audit is to identify the strengths and weaknesses within the HR Department, with the overriding result being the improvement of that function within the organization. As a diagnostic process, the Audit helps to address areas requiring improvement or the need for implementation of new processes.

On-Call Pay

The difference in pay that is used to compensate an employee for being available and able to respond to work during a given period of time.

Out-of-the-Money Options

Stock options, in which, the market value of the stock is less than the exercise price of the option, also known as underwater options.

Overhang

The size of the option pool (options granted and remaining options to be granted) as a percentage of total outstanding shares. A high percentage of overhang may result in dilution of the company's stock when the options are eventually exercised. Optimal overhang percentages often differ by industry.

Pay Compression

A situation in which pay differences among individuals with different levels of experience and performance in the organization decreases. Pay compression occurs for several reasons; however, the main reason is when situations in labor market pay levels increase more rapidly than current employees' pay adjustments. As a solution to competitive market shortages of particular job skills, managers occasionally may have to deviate from the pay grades to hire people with scarce skills. One possible solution to pay compression is to have employees follow a step progression based on length of service, assuming performance is satisfactory or better.

Pensions

Employs a formula by which an employee's pension payout is determined at retirement, usually based on pay and service.  There is one pooled fund of plan assets from which benefits are paid.  The employer's contributions are not earmarked for individuals.  An independent actuary advises the employer on the plan's assets and liabilities and recommends the amount of the total annual contribution.

Pyramid Exercise

In a stock option plan, an optionee exercises a minimum number of shares for cash and then through a series of stock-for-stock cashless transactions in order to fully exercise all stock options with a minimum cash investment.

Reload Stock Option

A new grant of stock options following the exercise of a previously granted stock option, usually in a cashless transaction. The amount of the reload grant most often equals the amount of stock tendered in the stock-for-stock swap.

Salary

A fixed regular payment, usually made monthly, for especially non-manual work.  Generally, these positions are not eligible for overtime pay.

Shift Differential

The difference in pay that is used to compensate an employee for working non-traditional hours or shifts.

Sign-On Bonus

A sum of money paid to a new employee and is designed to be an incentive for that employee to join the company. Sign-on bonuses are used for all different levels of jobs, from Executive positions to Clerical positions, and vary in amount depending on the level of the position. The bonuses are typically rewarded as a flat dollar amount, however some companies do have sign-on bonuses that are given as a percentage of base pay. Many sign-on bonus programs have provisions that force the employee to pay back a certain amount of the bonus if the employee decides to leave before a previously specified time frame (the most common time frame is one year).

Stock Dilution

An increase in the number of shares of a company's outstanding stock, thereby causing the value of each share to decrease. Typically, the number of shares increases when the company offers new stock to the public, when employees exercise their stock options, or when holders of convertible bonds convert their bonds to stock. Stock splits or reverse splits do not create dilution.

Time Accelerated

A feature added to a long-term award, either options or restricted awards where the stated vesting schedule is based on a fixed-time basis, but the plan allows for quicker or immediate vesting if certain performance criteria are achieved earlier.

Transaction Award

A payment to an executive or group of employees following the successful divestiture of a portion of the Company as part of the business plan.