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glossary

Glossary

A
B
C
D
E
F
G
H
I
J
K
L
M
N
O
P
Q
R
S
T
U
V
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X
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Z
A
Accrual Accounting

An accounting method that records revenue and expenses when incurred, regardless of whether revenue actually was received, or expenses actually were paid.

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Accelerator

An incremental incentive, whereby a salesperson is rewarded with greater pay for attaining higher levels of performance.

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B
Broker

An individual or business that works on commission rather than consulting fees to assist with placing and managing employee benefits programs.

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Base Pay

The fixed compensation paid to an employee for performing specific job responsibilities. It is typically paid as a salary, hourly or piece rate.

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C
Clawback

A recovery of incentives previously paid. For example, when a commission is reversed due to a customer returning a product.

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Commission

Commission is a portion of revenue generated that is given to a sales employee as part of an official sales compensation plan.

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Compensable Factors

A method of comparing multiple versions of webpage or mobile app against each other to determine which performs best.

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D
Discretionary Bonus

A plan in which management determines the size of the bonus pool and the amounts to beallocated to specific individualsafter a performance period. These have no predetermined formulaor promises, and are not guaranteed

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Draws

An amount of money that a payee may “borrow” against their future income (e.g., commissions).

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Differential

Compensation paid to accommodate certain working conditions. It is often part of the base pay component of compensation.

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E
Eligibility Date

The date an individual and/or dependents become eligible for benefits under an employeebenefits plan

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Executive Compensation

Includes all aspects of incentive and compensation programsfor senior leadership, such asannual and long-term incentive plans, competitive benchmarking, special incentive and retentionarrangements and deferred compensation, and so on

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F
Frozen Compensation Plan

Qualified sales compensation plans in which future participation has been discontinued, but active participants as of a date determined by management continue to have full or partial participation rights in commissions earned under the plan.

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Fixed Compensation

Nondiscretionary compensation that does not regularly vary according to performance or results achieved

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G
Gross Margin

A profit measure: sale price minus the cost of goods before overhead, profits and taxes. Gross margin may be used as a performance measure in sales compensation plans

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Generally Accepted Accounting Principles (GAAP)

The principles and rules of accounting applicable to U.S.companies, as prescribed by theFinancial Accounting Standards Board (FASB) and its predecessors, and as deemed required to apply to all public companies by rules established and enforced by the Securities and ExchangeCommission (SEC)

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Guarantee

A minimum amount that is guaranteed to new sales representatives/payees to ensure they earn a certain level of pay, in case their sales activity does not generate enough commissions. The company may or may not require the guarantee to be deducted (paid back) from future commissions (a recoverable draw).

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H
Highly Compensated Individual (HCI)

Any individual who meets one or more of the following definitions: one of the five highest-paid senior officers a shareholder who holds more than 10% of the stock in the company one of highest paid 25% of employees, disregarding nonparticipating excludable employees.

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I
Individual Pay Rate

The wage or salary level assigned to a given individual. Individual pay rates may vary for the same job or as a function of time and grade, performance, or some other basis for establishing variation in the employee’s value to the organization

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Incentive Progressivity

A concept whereby the percentage target potential of an incentive award is higher at higher income levels. It may be applied to either or both short-term and long-term incentives.

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Incentive

Any form of variable payment tied to performance. The payment may be a monetary award, such as cash or equity, or a nonmonetary award, such as merchandise or travel. Incentives are contrasted with bonuses in that performance goals for incentives are predetermined. Generallynondiscretionary and can be paid at any time of the year.

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J
Job Analysis

The systematic, formal study of the duties and responsibilities that constitute job content. The process seeks to obtain important and relevant information about the nature and level of the work performed and the specifications required for an incumbent to perform the job at a competent level

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K
Key Performance Indicators (KPIs)

High-level, quantifiable measures that are used to help a business or organization monitor its success in moving toward its goals, and tied closely to organizational health and initiatives. For example, a company focused on growth may include KPIs such as revenue and market share, whereas a business focused on increased profitability may emphasize KPIs such …

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L
L-Type Agreements

An L-Type Agreement is when a U.S. employer agrees to continue to make U.S. Social Security contributions (employer and employee portions) on the employee’s behalf, regardless of the employer’s country or the employee’s compensation package.

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Long-Term Incentive Plan

Any incentive plan (usually limited to executives) that requires the sustained performance of the firm for a period longer than one fiscal year for maximum benefit to the employee. Some plans are based on capital shares of the organization and may require investment by the employee, while others are based on financial performance.

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M
Multiple Measure Plan

Incentive plan designed to measure and reward performance using one or more goals. This type of incentive plan will reflect several ways to measure performance against a single objective or several objectives.

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N
Non-Discretionary Bonus

A plan in which management determines the size of the bonus pool and the amounts to be allocated to specific individuals after a performance period. These typically use a predetermined formula and pre-agreed promises.

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Non-Qualified Plans

Plans that provide benefits in excess of those possible within qualified plans, or otherwise do not meet the Internal Revenue Service (IRS) requirements, and therefore do not qualify for favourable tax treatment.

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Non-Recoverable Draw

A non-recoverable draw is a payment given to sales reps that the employer cannot or does not ask them to pay back.

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O
Operating Income

Income remaining after recognizing the cost of goods sold (COGS) and selling, general and administrative expense (SG&A), before other income and expense and before provision for taxes.

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Override

In the context of compensation, this concept refers to an additional percentage or incentive that a payee receives based on a sale made by another payee (similar to a roll-up). For example, a product manager might receive a 2% override on their products sold by sales representatives, even though the representatives do not report to …

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On-Target Earnings (OTE)

OTE (also known as Target Earnings) refers to the amount of compensation a payee can expect to receive if all quotas are achieved and other conditions are met (i.e., if everything is “on target”). This is only an estimate and is often used for expectation setting and budgeting. While the sales rep could earn this …

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P
Pension Equity Plan (PEP)

A Defined Benefit (DB) plan with some characteristics of a Defined Contribution (DC) plan. Under a PEP, for each year worked, participants are credited with a percentage that will be applied to their final average earnings. The percentage increases with the age and/or length of service of the participant. Pension equity plans are a type …

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Prorate

Proration means to make an adjustment or pay a portion of an incentive, usually based on eligibility rules.

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Premium

Sales compensation at greater than the payee’s usual pay rate (e.g., overtime, double-time for holidays, etc.).  

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Q
Quartile

A distribution that is divided into fourths.

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Quota

A target amount that a salesperson must sell for a particular period (month, quarter, year).

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R
Recoverable Draw

A recoverable draw is an advance on future commission payments that some employers allow their salespeople to withdraw.

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S
SPIF(F)s

Known as SPIFs, spiffs, or SPIVs, An additional incentive is given to the sales rep to drive certain behavior outside the normal incentive compensation plan, generally for a specified time period, and sometimes in the form of a contest. An example might be added incentives for truck sales during “truck month” at an automotive dealership. …

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Salary Grade

A group of jobs of the same or similar value, used for compensation purposes. All jobs in a salary grade have the same salary range: minimum, midpoint and maximum.

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Single Rate System

A compensation policy under which all employees in a given job are paid at the same rate instead of being placed in a pay range. Generally applies in situations where there is little room for variation in job performance or skill level.

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Shadow Accounting

Shadow accounting is the practice of keeping an account of transactions in addition to the primary bookkeeping process, typically to identify mistakes and inconsistencies.

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T
Tiered Pay Plan

A sales compensation system that differentiates salary based on time of hire (i.e., new employees are paid less than current employees for performing the same or similar jobs) as well as on nature of work performed.

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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, as opposed to On-Target Earnings, which tends to be a higher. High performers will exceed target earnings and poor performers will fall …

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U
Unreasonable Compensation

A potential tax issue in privately held or closely held companies is executive compensation. The Internal Revenue Service (IRS) may challenge executive compensation in such organizations as excessive or unreasonable and as a distribution of corporate profits rather than salary (IRS Sec.162). If the IRS is sustained, the payment is a dividend and subject to …

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V
Variable Compensation

Variable compensation is pay given to an employee based on the results they produce. It is usually offered on top of a fixed “base salary” and comes in several forms.

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W
Windfall

A sales result that was realized outside the normal influencing role of the sales representative. Because the salesperson had low or no involvement in creating the sale, a windfall is sometimes excluded from normal incentive compensation treatment.

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