Definitions

Definitions are divided into common statistical terms, and HR terms.

Common Statistical Terms

Mean - the most common measure of the centre of a population. The ordinary arithmetic average.

Median - the "middle value" in a histogram or stemplot ie. the number whereat half the observations are smaller, and half are larger. The median is a useful measure of centre, and very close to the median where the distribution is symmetrical, but can be misleading in a skewed distribution.

Range - describes the spread of the distribution. The range is the difference between the largest and smallest observations, and again must be interpreted carefully where these observations are outliers.

Quartiles - the quartiles mark out the middle half of the data. The first quartile lies one quarter of the way up the list, and is thus larger than 25% of the observations. The third quartile lies three-quarters of the way up the list, and is thus larger than 75% of the observations. The second quartile is the median, which is larger than 50% of the observations.

The Five-Number Summary - consistes of the smallest observation, the first quartile, the median, the third quartile, and the largest observation. These numbers are written in order from smallest to largest and offer a reasonably complete description of centre and spread.

Standard Deviation - a measure of spread which looks at how far the observations are from their mean.

Correlation - The correlation measures the strength and direction of the linear relationship between two quantitative variables. Like the mean and standard deviation, correlation is strongly affected by a few outlying observations, and must be used with caution when outliers appear in a scatterplot.

Normal distribution - the most common bell-shaped (symmetrical) distribution, used frequently as a basis for statistical inference. The fact that many naturally occuring phenomena are distributed normally does not mean that organisational phenomena should be. Many salary distributions are non-normal.

Relevant HR Terms

A-F G-L M-R S-Z

Base Salary - standard salary which an employee receives for doing a job. It is used as the basis for calculating other allowances and benefits.

Benchmark job or Key job - a job that is similar or comparable in content across firms.

Benefits - All financial rewards that are not paid directly in cash to the employee, e.g. annual leave, maternity leave.

Bonus - A discretionary reward, usually provided after the achievement of a goal.

Central tendency - A common error that occurs when every employee is incorrectly rated near the average or middle of the scale.

Certified Compensation Professional (CCP) - A person who has successfully completed the certification program of the American Compensation Association.

Compa-ratio - The ratio of an actual pay rate (numerator) to the midpoint for the respective pay grade (denominator). Compa-ratios are used primarily to compare an individual's actual rate of pay to the midpoint or some other control point of the structure. A compa-ratio can be calculated for a group of people, a department, or an entire organisation.

Compensation - what employees receive in exchange for their work. Includes pay and benefits (total compensation) or just pay (cash compensation).

Contingent compensation - any pay or benefit, the receipt of which depends on some behaviour or productivity of the employee.

Cost-benefit analysis - involves an evaluation of the tangible and intangible costs and benefits resulting from a decision.

Cost-of-living allowance - designed to protect the expatriates standard of living from cost of living differences between the host country and the home country and to offer some protection against exchange rate fluctuations.

Data analysis - Market data for RMA surveys is presented using normal arithmetical calculations as well as a percentile analysis. In providing the percentile analysis of data the the following statistical formula is used: P(n+1)/100; where P is the percentile, and N is the total number of data points.

Downsizing - a reduction in a company's work force to improve its bottom line.

Equity funding - the funding of a portion of a retirement plan by investment in equity. Equity funding affects the employer's contributions, but not the employee's benefits.

Expatriate package - total compensation and benefits given to personnel on a foreign assignment. Includes base salary, foreign service premium, hardship allowance, housing assistance, education allowance, relocation allowance and other special allowances and benefits associated with a foreign assignment.

Grading - employee's performance is matched with a specific grade definition such as superior, good, acceptable, marginal and unsatisfactory.

Guaranteed Pay - Annual basic salary plus all elements of the incumbents compensation package that are paid through payroll on a monthly or annual basis. These are not those that are subject to reimbursements at actuals. The items of pay that can be considered to be of a guaranteed nature largely include such items as Housing Allowance, Transport or Car Allowance, Fixed Bonus, Meal Allowance, etc. These are items that can be considered a regular element of cash compensation.

Human resources management - involves the productive use of people in achieving the organisation's strategic business objectives and the satisfaction of the individual employee's needs.

Incentive compensation - compensation that is linked to performance by rewarding employees for actual results achieved instead of seniority or hours worked.

Job family - jobs involving work of the same nature, but requiring different skill and responsibility levels. For example, Applications Programming is a job family; Senior Applications Programmer is a job (skill/responsibility level) within that family.

Job grade - one of the classes, levels or groups into which jobs of the same or similar value are grouped for compensation purposes. Usually, all jobs in a grade have the same pay range: maximum, minimum and midpoint.

Job pricing - the practice of establishing wage rates for jobs within the organisation, usually combining judgements regarding market value and internal job-evaluation results.

Market pricing - a wage-and-salary policy that sets the rates to be paid for a job to the organisation's best estimate of the going wage rate in the external marketplace for that job. Estimates of what the market would pay for a job, based on what it pays for similar jobs, are used to price jobs for which market data are not available.

Merit increase - an adjustment to individual salary based on performance, or some other individual equity basis.

Performance management - a managerial process which consists of planning performance, managing performance through observation and feedback, appraising performance, and rewarding performance.

Target compensation - the expected pay for a position, including both base pay and at-risk pay. The variable portion of target compensation is based on what the employee ought to earn on average, given satisfactory performance. High performers will exceed target earnings and poor performers will fall short of the target.

Total cash - This is the sum of guaranteed pay plus variable bonuses and commissions. These are payments that can vary from year to year depending on various factors such as individual or company performance.

Total compensation - This is defined as total cash plus the valued perquisites and benefits. In valuing perquisites and benefits we have provided values to facilities provided to employees that have to be claimed before being paid, and also the value of long term benefits. Some items that have been included in this valuation in our surveys are medical expenses, vacation tickets, childrens education, terminal benefits (gratuity, provident fund, social security), share purchase plans, club memberships etc.

Upgrading - the advancement of a job to a higher salary grade.

 

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Reward Management Associates
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Last Updated: 13 February, 2001