Free resource · Glossary
Pay and reward glossary for product teams
The words HR and reward teams use every day, explained in plain English for the people designing and building their software. Each term has its own link, so you can share exactly the one you need.
In short
Pay and reward software is built around a small set of ideas. Roles are valued through job evaluation, placed in grades, and each grade has a pay range with a minimum, midpoint and maximum. Where someone sits in that range is measured by compa-ratio and range penetration. Pay reviews move pay each year, and equal pay law, gender pay gap reporting and pay transparency rules decide what has to be fair, explained and reported.
Pay structures
The framework that pay decisions sit on. Most pay and reward products start here, so the data model needs to get these right.
- Pay structure
- The framework an organisation uses to set pay, usually a set of grades with a pay range for each. It turns thousands of individual salary decisions into a smaller number of decisions about where roles sit.
- Grade
- A level in a pay structure. Roles of similar size or value sit in the same grade and share a pay range. Some organisations call grades levels or bands.
- Job architecture
- How an organisation groups and levels its roles, usually by job family and level. Grades and pay ranges are normally built on top of it.
- Job family
- A group of roles doing similar kinds of work at different levels, such as finance, sales or engineering.
- Pay range
- The minimum and maximum pay for a grade. Most people in the grade should be paid somewhere between the two. Also called a pay band or salary range.
- Minimum, midpoint and maximum
- The bottom, middle and top of a pay range. The midpoint usually represents the market rate for someone fully competent in the role.
- Range spread
- How wide a pay range is, usually the difference between the maximum and minimum as a percentage of the minimum. A range of £40,000 to £52,000 has a spread of 30%.
- Midpoint differential
- The percentage difference between the midpoints of neighbouring grades. Too small and grades blur together. Too large and promotion becomes a big jump.
- Range overlap
- How much one grade's pay range overlaps with the next. Some overlap is normal, because an experienced person in one grade can be worth more than someone new to the grade above.
- Broadbanding
- Using fewer, wider pay ranges, each covering roles that might otherwise sit in several grades. It's more flexible but harder to keep consistent.
- Pay spine
- A single ladder of fixed pay points, common in the UK public sector. Each grade covers a set of points, and pay often moves up one point a year.
Where pay sits in a range
Measures that show whether someone's pay is where it should be. Reward teams use them constantly, so they're worth calculating for them.
- Compa-ratio
- Pay divided by the midpoint of the range. 1.0 means paid exactly at the midpoint, 0.9 means 10% below it. Someone earning £45,000 in a range with a £50,000 midpoint has a compa-ratio of 0.9.
- Range penetration
- How far through the range someone's pay sits: pay minus the minimum, divided by the maximum minus the minimum. It's 0% at the minimum and 100% at the maximum. Someone earning £45,000 in a £40,000 to £60,000 range is at 25%.
- Red-circled pay
- Pay above the maximum of its range. It's usually protected, but future increases are frozen or limited until the range catches up.
- Green-circled pay
- Pay below the minimum of its range. It's normally raised to the minimum as a priority.
- Pay compression
- When pay differences between levels shrink so much that more senior or experienced people earn little more than those below them. It often happens when new hires join at current market rates while existing pay lags behind.
Market data
How organisations compare their pay with everyone else's. Products that show market data need to be clear about where it comes from and how old it is.
- Benchmarking
- Comparing what your roles are paid with similar roles in the market, using salary surveys or pay data providers.
- Market rate
- The typical pay for a role in the market, usually taken as the median.
- Median
- The middle value when all pay figures are sorted from lowest to highest. It's less affected by a few very high salaries than the mean, or average.
- Percentile
- A point in a set of pay data. The 50th percentile is the median. The 75th percentile is the point that 75% of the figures fall below. Organisations often set a target such as paying at the median.
Job evaluation
How organisations decide the relative size of roles. It's the foundation for fair grades and for defending pay decisions.
- Job evaluation
- A systematic way of judging the relative size or value of roles, used to place them in grades. It assesses the role, not the person doing it.
- Analytical job evaluation
- A method that scores each role against defined factors, such as knowledge, responsibility, effort and working conditions, rather than judging the role as a whole.
- Point-factor scheme
- The most common analytical method. Each factor has levels worth a set number of points, and a role's total points decide its grade.
- Non-analytical job evaluation
- Methods that compare whole roles rather than breaking them into factors, such as ranking roles, comparing them in pairs, or matching them to grade descriptions. They're quicker but harder to defend.
- Factor
- One aspect of a role that's assessed in analytical job evaluation, such as knowledge, scope, impact or complexity.
- Level descriptor
- The wording that describes each level of a factor. Evaluators compare a role against the descriptors to decide which level it meets.
- Job description
- A written summary of a role's purpose, responsibilities and requirements. It's usually the starting point for job evaluation.
Pay reviews
The regular cycle of deciding pay increases. For many reward teams it's the busiest, most spreadsheet-heavy time of year.
- Pay review
- The regular process, usually annual, of deciding pay increases across an organisation.
- Pay review budget
- The total amount available for increases, usually set as a percentage of the pay bill.
- Merit increase
- A pay increase linked to performance.
- Merit matrix
- A grid that sets increase percentages by performance rating and position in range, so strong performers who are low in their range get larger increases.
- Cost-of-living increase
- An increase given across the board to help pay keep up with inflation, not linked to performance.
- Total reward
- Everything employees get in return for their work: pay, bonuses, benefits, pension, leave, development and working conditions.
- Total reward statement
- A personalised summary that shows an employee the full value of their package, not just their salary.
Equal pay and pay transparency
The rules that decide what has to be fair, explained and reported. They're the main reason reward teams need a clear record of how pay decisions were made.
- Equal pay
- The legal right for women and men to receive equal pay for equal work. In Great Britain it's set out in the Equality Act 2010.
- Equal work
- Under the Equality Act 2010, work counts as equal if it's like work, work rated as equivalent, or work of equal value.
- Like work
- Work that is the same or broadly similar, using similar skills.
- Work rated as equivalent
- Different roles that a job evaluation scheme has rated as equal in value, based on demands such as skill, responsibility and effort.
- Work of equal value
- Different roles that are equal in value because of the demands they make, such as skill, training, responsibility or working conditions, even though they haven't been rated equivalent by a job evaluation scheme. In Great Britain, a non-discriminatory job evaluation that rates two roles as having different value can be a defence to an equal value claim.
- Gender pay gap
- The difference in average pay between all men and all women in an organisation, shown as a percentage of men's pay. It isn't the same as unequal pay. A gap can exist even when everyone is paid equally for equal work, for example when more men hold senior roles.
- Mean and median gender pay gap
- The mean gap compares average pay. The median gap compares the middle earners. Reporting usually asks for both, because a few very high salaries can skew the mean.
- Pay quartiles
- Dividing employees into four equal groups by pay, from lowest to highest, and showing the proportion of women and men in each.
- Gender pay gap reporting
- In Great Britain, employers with 250 or more employees must publish their gender pay gap figures every year.
- CEO pay ratio
- In the UK, quoted companies with more than 250 UK employees must report the ratio of their chief executive's pay to the pay of their UK employees.
- Pay transparency
- Being open about pay ranges, how pay is set and pay gaps. It's increasingly a legal requirement rather than a choice.
- EU Pay Transparency Directive
- EU law, Directive (EU) 2023/970, that gives job applicants the right to see pay ranges, gives workers the right to pay information, and requires gender pay gap reporting and joint pay assessments. See the pay transparency checklist for HR software.
- Joint pay assessment
- Under the EU Pay Transparency Directive, a review employers must carry out with worker representatives when a gender pay gap of 5% or more in a category of workers isn't justified or fixed within six months.
More free resources from Drew Hajduk at drewhajduk.co.uk/resources
Working on pay or reward software?
I'm always happy to hear from people building in this space, or to hear what you'd add to this glossary.