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What Is the Gender Pay Gap?

The gender pay gap refers to the percentage difference between the average earnings of men and women, typically measured across an entire organization, sector, or labor market. It is a high-level metric used to highlight broad disparities in pay that may stem from a range of structural and systemic factors. Unlike the concept of equal pay—which focuses on ensuring that individuals doing the same or equivalent work receive the same compensation—the gender pay gap captures aggregate differences that reflect occupational segregation, leadership representation, work patterns, and access to advancement opportunities.

The gender pay gap is commonly represented as the percentage difference between average male earnings and average female earnings. For example, a gender pay gap of 20% means that, on average, women earn 80 cents for every dollar earned by men. The metric can be calculated using mean or median earnings and may be reported across different job levels, business units, or countries.

Why is the gender pay gap important?

The gender pay gap is an essential indicator of workforce equity and fairness. While the existence of a pay gap does not necessarily indicate direct discrimination, it often points to underlying imbalances in the structure of work and access to opportunity. As such, it plays a critical role in diagnosing gender inequality and prompting organizational and policy reforms.

For organizations, understanding and addressing the gender pay gap is increasingly tied to:

  • Regulatory compliance, especially in jurisdictions with mandatory pay reporting or transparency laws.
  • Corporate reputation, as investors, customers, and employees scrutinize diversity and equity performance.
  • Talent strategy, since fair pay and equal opportunity are critical factors in attracting and retaining diverse talent.
  • Risk mitigation, particularly with regard to litigation, employee dissatisfaction, or reputational harm.

In both the U.S. and Europe, the gender pay gap has become a focal point of regulatory and public attention. In the European Union, the EU Pay Transparency Directive mandates regular reporting on pay gaps, while in the U.S., several states and cities require employers to disclose pay ranges or file pay data reports by gender and race. While the U.S. has no national requirement for employers to report on pay gaps, the Equal Employment Opportunity Commission (EEOC) does require many U.S. companies to report key demographic and pay data

Dimensions of the gender pay gap

The gender pay gap is not a single, uniform figure—it varies by geography, industry, job level, and demographic group. A thorough analysis requires understanding the multiple dimensions of the gap.

An important distinction is made between between the unadjusted and adjusted pay gaps:

  • Unadjusted gender pay gap, which compares average earnings without accounting for differences in roles, tenure, education, or hours worked.
  • Adjusted gender pay gap, which attempts to control for these factors to isolate the portion of the gap that cannot be explained by observable differences.

The unadjusted gap is typically larger and more indicative of systemic disparities in workforce composition, while the adjusted gap is useful for assessing potential discrimination in pay practices.

Other important factors that influence the gender pay gap include:

  • Occupational segregation: Women and men may be concentrated in different roles or functions, some of which command higher compensation.
  • Vertical segregation: Women may be underrepresented in senior leadership positions, which are often associated with higher pay.
  • Work patterns: Differences in full-time versus part-time work, career interruptions due to caregiving, or flexibility demands may affect average earnings.
  • Negotiation dynamics and pay-setting practices: Gender differences in negotiation outcomes and initial salary offers can compound over time.

Why should organizations address the gender pay gap?

Beyond meeting regulatory compliance requirements, taking proactive steps to close the gender pay gap is both a business advantage and a signal of organizational maturity. When employers commit to fair and equitable compensation, they create an environment where employees feel valued, motivated, and aligned with the company’s values. This in turn enhances performance, retention, and brand reputation.

Organizations that actively work to close the gender pay gap can:

  • Attract and retain high-performing talent who prioritize fairness and transparency.
  • Strengthen compliance with current and future pay transparency regulations.
  • Enhance their employer brand among diverse candidates and current employees.
  • Demonstrate accountability and earn trust from investors, customers, and stakeholders.

By embedding pay equity into their broader people and compensation strategies, organizations position themselves for sustainable, inclusive growth and a more engaged, high-performing workforce.

Who is affected by the gender pay gap?

The gender pay gap impacts a broad range of stakeholders, both within and beyond the organization. At the individual level, women may experience long-term financial disadvantages, including lower lifetime earnings, reduced retirement savings, and limited access to leadership roles. These effects are particularly pronounced for women of color, disabled women, and other groups facing intersecting inequalities.

For employers, the gender pay gap affects workforce dynamics and organizational performance. It may reflect underutilization of talent, uneven access to mentorship or promotion, and potential biases in pay-setting. HR, finance, and executive teams all share responsibility for identifying and addressing the drivers of the gap.

On a societal level, the gender pay gap contributes to economic inequality and reduces national productivity. Addressing it can boost GDP, improve labor force participation, and enhance overall economic resilience.

What are common approaches to measuring and addressing the gender pay gap?

Organizations seeking to understand and close the gender pay gap often begin with a pay gap analysis. This involves collecting and analyzing compensation data by gender, typically broken down by role, level, location, and other relevant variables.

There are two primary approaches to this analysis:

  • Descriptive analysis, which quantifies the average or median pay gap and identifies patterns across different business units or demographics.
  • Regression analysis, which adjusts for factors like role, experience, or education, and isolates unexplained differences that may reflect bias.

These analyses may be conducted internally or with the support of external consultants or software platforms. Increasingly, organizations use compensation management and pay equity technology to automate data collection, model different scenarios, and track progress over time.

Beyond measurement, organizations must implement targeted actions to reduce the gap. These may include:

  • Reviewing and standardizing compensation and promotion processes to reduce discretion and bias.
  • Conducting regular pay equity audits and making data-informed adjustments.
  • Implementing policies to support equitable advancement, such as flexible work, parental leave, and inclusive leadership development.
  • Increasing transparency around pay ranges and criteria for advancement.

How is the gender pay gap different from equal pay?

While related, the gender pay gap and equal pay are distinct concepts. Equal pay refers to the legal and ethical requirement to pay individuals equally for the same or equivalent work, regardless of gender. This principle is enshrined in legislation in both the U.S. (e.g., Equal Pay Act) and EU member states.

The gender pay gap, by contrast, is a broader metric that captures average earnings differences across the workforce. It reflects both equal pay issues and structural factors, such as who holds which jobs and how work is organized.

A company may be fully compliant with equal pay laws while still exhibiting a significant gender pay gap—often due to unequal representation in higher-paid roles. Conversely, closing the gender pay gap generally requires a holistic strategy that addresses both pay equity and organizational dynamics.

How can you evaluate progress on closing the gender pay gap?

To evaluate the effectiveness of gender pay gap initiatives, organizations must look beyond a single year’s numbers. Progress is often incremental and must be understood in the context of workforce changes, market trends, and organizational strategy.

Key metrics and indicators include:

  • Changes in median and mean gender pay gaps over time.
  • Representation of women in leadership and high-paying roles.
  • Rate of promotions and salary increases by gender.
  • Completion and outcomes of pay equity audits.
  • Employee perceptions of fairness and transparency, measured through engagement surveys.

Regular reporting, both internally and externally, helps maintain accountability and align stakeholders around shared goals. In the EU, many employers are required to publish this data annually, while in the U.S., public companies may face growing pressure from investors and regulators to disclose gender pay metrics.

What are best practices for reducing the gender pay gap?

Organizations that have successfully narrowed their gender pay gaps typically adopt a sustained, multi-pronged strategy. Best practices include:

  • Establishing leadership accountability for gender equity goals.
  • Embedding pay equity considerations into compensation planning cycles.
  • Providing training on inclusive management, pay decisions, and bias mitigation.
  • Using structured pay and promotion criteria to reduce subjectivity.
  • Creating transparent career paths and tracking internal mobility by gender.
  • Ensuring that flexible work and caregiving accommodations do not negatively affect career progression.

Technology platforms can support these efforts by providing visibility into pay data, streamlining equity reviews, and supporting scenario modeling.

Frequently asked questions (FAQs) about the gender pay gap

1. Is the gender pay gap always a result of discrimination?
Not necessarily. The pay gap often reflects structural differences in representation or job roles. However, unexplained gaps may point to discrimination or inequitable practices.

2. What is the difference between the adjusted and unadjusted gender pay gap?
The unadjusted gap looks at average earnings across all employees, while the adjusted gap controls for factors such as job level, experience, or hours worked.

3. Is the gender pay gap the same in every country?
No. The size and drivers of the gender pay gap vary significantly by country, influenced by cultural norms, labor laws, childcare systems, and levels of female labor force participation.

4. How often should organizations conduct a gender pay gap analysis?
At minimum annually, especially in jurisdictions with reporting requirements. Many organizations conduct more frequent internal reviews aligned with compensation cycles.

5. Can technology help reduce the gender pay gap?
Yes. Compensation and pay equity platforms can help identify pay disparities, model adjustments, and ensure fairness in pay and promotion decisions.

Summary

The gender pay gap is a critical indicator of fairness and equity in the workplace. While it is influenced by many factors, it remains a valuable lens for understanding how opportunity and reward are distributed. For compensation and benefits practitioners, addressing the gender pay gap requires accurate data, structured processes, and a long-term commitment to equity. Technology plays an increasingly important role in enabling these efforts, allowing organizations to :move from compliance to strategic transformation.

Explore more on this topic:

  1. 2024: State of Pay Equity Report
  2. Gender pay gap success stories:
  3. Allianz Wins HR Management Prize for Global Approach to Pay Equity
  4. VÍS Builds a Culture of Gender Equality
  5. RUV Creates a Culture of Diversity, Equity, and Inclusion
  6. Local requirements - Pay equity analyses and reporting

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A

  • Absolute commission plan

    Pays based on accomplishing specific activities or milestones; does not involve a quota. For example, a rep might be paid $500 for each sale of Product X, or $100 for each net new customer contract.

  • Accelerator

    Increase in the commission rate for higher attainment levels. For example, commission rate might be 3% on the first 200k of revenue, 4% on the next 200k, then 5% for everything over 400k. Or can be based on quota attainment, for example, 3% up to 80% of quota, 4% from 81-120% of quota, and 5% over 120% of quota. Also known as a "kicker".

  • Accruals

    Amounts to be held in reserve to pay expected future compensation that will be due and payable at specific points in time. This is important for the Finance group in their financial planning and reporting, as it represents a liability and has an impact on cash flow. A compensation system should be able to forecast needed accrual amounts.

  • Annual review

    A performance review which is performed on each anniversary of an employee's hire date, and may be tied to a pay increase. See also Focal Point Review.

  • API integration

    Application Programming Interface; refers to a connector between two software applications that allows them to communicate with each other and send data back and forth. A compensation application may provide APIs to communicate with other systems such as HR, CRM, ERP, etc.

  • Approvals

    Many compensation processes require review and acceptance of pay decisions. These approvals may follow a simple reporting hierarchy, or may be more complex if there are matrixed responsibilities where multiple approvers need to sign off on a pay decision. Approvals (and rejections), along with any reason codes or commentary, should be recorded and tracked in a traceable way to allow for auditing and compliance.

  • Artificial Intelligence (AI)

    A computer technology, often used in conjunction with Machine Learning, that can analyze massive amounts of information and be used to support compensation tasks like establishing localized pay scales, ensuring pay equity, removing bias from compensation decisions, predicting performance, optimizing costs, and improving the employee experience, among others. Use of AI-driven compensation technology can mitigate the risk of employee turnover. See also Machine Learning.

  • ASC 606

    Revenue recognition rule by the US Financial Accounting Standards Board (FASB), with a similar rule (IFRS 15) being issued by the International Accounting Standards Board (IASB), dealing with revenue for contracted goods or services that are delivered over time, such as software subscriptions. In dealing with the complexities brought about by these time-based revenue recognition rules an automated system can greatly reduce administrative time and effort while improving accuracy.

  • Attainment

    The degree to which a measurable target or quota has been achieved, expressed as a percentage. Often a factor in sales incentive or bonus calculations.

B

  • Base rate

    Wages paid for work for a specified amount of time, usually expressed as an hourly rate. Does not include overtime or incentives.

  • Base salary

    The fixed portion of an employee’s compensation, usually expressed as an annualized amount in compensation planning and analysis.

  • Benchmarking

    Comparing job descriptions and/or pay scales to standards for a given industry and/or market, to help determine fair and competitive pay rates. Benchmark information can come from a variety of providers who conduct salary surveys. The median pay for a given job can be used to calculate a compa ratio.

  • Benefits

    Non-wage compensation, such as health insurance, paid time off, retirement plans, wellness programs, and other considerations that add value to an employee's compensation package, and aid in attracting and retaining talent.

  • Bonus

    Variable cash compensation. May be discretionary (based on management discretion) or objectives-based (based on achievement of predefined objectives, actions, or production metrics), and may have components that are based on individual, team, and company goals. Generally paid on a fixed cycle, such as quarterly, half-yearly, or annual. The target bonus may be based on a fixed amount or a percentage of base pay.

  • Bottom-up budget

    A compensation budget that is developed by looking at the projected costs of paying the employees that are projected to be needed during the budgeted period, according to the proposed compensation plans, and aggregating those amounts to arrive at the total company compensation budget. Generally done at the department level and rolled up.

  • Budget allocations

    Compensation amounts allocated to individual departments. See "top-down," "bottom-up," and "zero-based" budgets.

  • Budget pools

    Designated amounts of money for a given unit or subunit that then may be allocated within that unit, for a given compensation process, such as salary merit increases, bonus payouts, or promotions.

C

  • Cap

    An upper limit on a commission that can be earned in a given period, typically expressed as a percentage of quota attainment. For example, if the cap is 120% and a rep achieves 140% of quota for the period, the rep will only be paid 120% of the commission target.

  • Carried interest or carry

    A form of performance bonus used in private equity and hedge funds, based on the firm's performance. It is typically a percentage of profits, but only paid above a certain rate of return (hurdle rate), and may have other restrictions and provisions.

  • Channel management

    The process of managing incentive compensation for external sales channels such as agents, agencies, and distributors. This requires accurate calculation of performance-based incentives due according to the contracts or incentive plans in place for each participant, and the timely and transparent payment and communication of the incentives.

  • Clawbacks

    Requiring return of compensation previously paid to an employee based on contractual provisions regarding fraud or misconduct or a future financial restatement or serious decline in performance. Most often used in the financial industry.

  • Commission earnings

    Pay that is earned from sales of a product or service in a given time period, based on the applicable commission plan(s), to be paid at a designated time. See also Commission payments.

  • Commission payments

    Payments of commissions earned. Normally at designated intervals such as monthly or quarterly. Earnings and payments need to be tracked separately to support deferred comp, retroactive adjustments/clawbacks, year-end true-ups, or different payment cycles for different plan components/targets. (See also Commission earnings.)

  • Commission plans

    A delineation of how commissions will be calculated and paid. There are many different plan structures, including Absolute, Relative, Straight-line, Tiered, Territory volume, Gross margin, and others.

  • Commission statements

    A report of the commissions earned by a sales rep during a given period. Statements should enable reps to see exactly how their commissions were calculated, including showing the underlying sales, how the sales were credited/split, and the commission rate applied.

  • Compa-ratio

    A ratio that indicates how a given salary compares to a standard. The standard may be the midpoint of the internal pay range for that job, or may be the median salary for the same job based on external market benchmarks determined from salary surveys. The compa-ratio is the salary being paid divided by the internal or external median salary. So if the salary is 125,000 and the range for the position is 100,000 to 130,000, the compa-ratio would be 125k/115k or 1.09.

  • Compensation

    The total financial and non-financial rewards an employee receives in exchange for work, including base salary, bonuses, incentives, equity, and benefits. Compensation is a key component of talent management, influencing motivation, retention, and organizational equity. Effective compensation management ensures fairness, compliance, and competitiveness, often requiring technology to manage complexity and support pay equity initiatives.

  • Compensation budgeting

    Determining the cost and distribution of all compensation elements. The two most common approaches are top-down and bottom-up. Another approach is zero-based budgeting. See the definitions of those terms.

  • Compensation cycle

    The process of planning and delivering compensation, generally consisting of evaluation, setup, recommendations, review & approval, communication, and payment. Also called a Compensation round.

  • Compensation cycle planning

    Planning for the complete compensation cycle, including designing compensation plans, running simulations, creating budgets, generating accruals, managing the review and approval processes, communication, and reporting.

  • Compensation forecasting

    Projecting the distribution and cost of compensation for a given time period. Often done quarterly, to provide Finance with up-to-date accruals. Your compensation system should enable you to take the latest performance forecasts and use them to generate an updated compensation spending forecast, using simulations to allow the performance assumptions and current compensation plans to calculate projected payouts.

  • Compensation management

    The strategic process of designing, administering, and optimizing employee pay structures to align with organizational goals, market conditions, and regulatory requirements. Effective compensation management ensures fairness, transparency, and motivation while minimizing compliance risks. Best practice involves leveraging dedicated compensation management technology to enhance accuracy, efficiency, and data-driven decision-making.
    Read more
  • Compensation management software

    A specialized technology solution designed to streamline the planning, execution, and analysis of compensation programs, including salary structures, bonuses, incentives, and pay equity. By automating complex calculations, ensuring compliance, and providing data-driven insights, compensation management software enhances accuracy, efficiency, and transparency, supporting organizations in making equitable and strategic compensation decisions.
    Read more
  • Compensation philosophy

    A company’s guiding belief system about how it pays employees. It outlines the rationale behind pay decisions—such as whether to lead or match the market, how to balance internal equity with external competitiveness, and the role of performance in determining pay. It provides the “why” behind compensation practices, while the compensation strategy defines the “how.” See also Compensation strategy.

  • Compensation plan

    A structured framework outlining an organization’s approach to employee pay, including base salary, bonuses, incentives, and benefits. A well-designed compensation plan ensures internal equity, market competitiveness, and compliance. Managing complex compensation plans effectively often requires dedicated compensation technology to ensure accuracy, transparency, and alignment with business strategy.
    Read more
  • Compensation planning

    The collaborative process of designing and budgeting employee compensation to align with business objectives, market trends, and regulatory requirements. It involves input from HR, finance, and business leaders to ensure fairness, competitiveness, and sustainability. Organizations with complex pay structures benefit from dedicated compensation management technology to enhance efficiency, compliance, and decision accuracy.

  • Compensation reporting & analysis

    The ability to produce the information needed by all stakeholders: employees, managers, HR, Finance, executives, the Board of Directors, auditors, and regulators. Reports ideally should be on demand via self-service for the appropriate audiences. Analysis should show compensation effectiveness, distribution, fairness, and discrepancies. Predictive analytics can use the company's data assets to spot trends, predict future performance, and proactively reduce risk.

  • Compensation round

    See Compensation cycle.

  • Compensation simulation

    Using compensation plans, together with performance assumptions about attainment of goals that drive variable pay, to estimate compensation spending and return on investment (ROI). A compensation management system should provide the ability to run accurate simulations based on varying what-if scenarios.

  • Compensation strategy

    A company's approach to using compensation to attract and retain talent, and drive the human performance needed to achieve company goals. Since company priorities and strategies may shift throughout the year, compensation strategy and execution should be able to adapt quickly to redirect behaviors in support of new directions. See also Compensation philosophy.

  • Compensation transparency

    See Pay transparency.

  • Competency-based pay

    A compensation system that rewards based on an employee's skills and experience rather than their job title or position. Also known as skill-based and knowledge-based pay.

  • Contests

    Limited time special events with special rewards designed to provide motivation for achieving a particular short term objective. Rewards typically can be a prize, cash bonus, or points in a point system.

  • Crediting

    See Sales crediting.

  • CSRD (Corporate Sustainability Reporting Directive)

    An EU regulation that requires large companies to disclose detailed ESG data—including workforce-related metrics such as pay equity. As outlined in beqom’s overview of CSRD and pay equity, the directive raises the bar for transparency, pushing organizations to track and report on fair compensation practices as part of their sustainability efforts.

D

  • Decelerator

    The opposite of an accelerator. Penalizes a rep for being under quota by applying a lower commission rate. See also Accelerator.

  • Deferred compensation

    Compensation, whether cash or equity, that is earned and accrued in the present but paid at a later date, such as a deferred bonus, deferred profit sharing, or stock plan. The future payment must be accrued for.
    Read more
  • Deferred pay

    See Deferred compensation.

  • Deferred Profit-Sharing Plan (DPSP)

    An incentive plan in which eligible employees are awarded a payment based on a percentage of company profits during a given period of time, usually annually. In publicly traded companies this payment is often in the form of company stock. The amount distributed to each employee may be weighted according to the employee's base salary so that employees with higher salaries receive a greater amount of the shared pool of profits.

  • Discretionary bonus

    Bonus whose payment is subject to management decision as to whether and how much to pay; not based on predetermined criteria or performance objectives.

  • Draw (recoverable and non-recoverable)

    An advance payment against future commissions. A recoverable draw will be paid back by the sales rep when the commission is actually earned. A non-recoverable draw is not expected to be paid back; this typically would be used for new sales reps who realistically are not likely to earn commissions in the short term.

E

F

  • Fixed commission

    See Flat rate commission.

  • Flat commission

    Commission is a fixed amount per unit. See also Flat rate commission.

  • Flat rate commission

    Commission rate is a fixed percentage of sales that does not vary based on volume (as with an accelerator). Also known as a Fixed commission.

  • Flexibility in a framework

    A term coined by beqom to refer to the need to provide a consistent structure for compensation across a company, especially a global company, but to allow for local flexibility to adapt to local market needs.

  • Focal point review

    A performance review which is performed at the same time for everyone in the company, and may be tied to a pay increase. See also Annual Review.

  • Forecasts

    Projections of future financial performance. In terms of compensation the forecast will depend on headcount plans, compensation plan designs, and performance against the metrics to which compensation is tied.

G

  • Gate

    A goal that must be met or event that must occur before a commission will be paid. The gate could be based on corporate, team, or individual performance, and can be financial or based on another KPI. For example, commissions are not paid unless target sales for a new product is met, or the customer renewal rate is above a certain level, or corporate EBITDA is above a certain amount. Gates incentivize the sales team to focus on more than just making the easiest sales or, as in the last example, ensure the company has the funds to pay commissions. Other terms sometimes used for the gating concept include "hurdles", "tripwires", "qualifiers" and "knockouts".

  • Gender pay

    The earnings received by individuals, categorized by gender, within an organization or labor market. Gender pay reflects how compensation is distributed across different genders and can provide context for evaluating broader patterns in workforce equity and compensation practices.

  • Gross margin commission plan

    Commissions paid based on gross margin, after cost of goods and/or cost of sales are deducted from the revenue. Forces reps to focus on profitable sales and discourages overuse of discounting.

  • Guarantee

    A minimum commission amount that is guaranteed to be paid during a period of time, regardless of actual sales. Generally used for new sales reps who are just ramping up.

H

  • Hazard pay

    Additional pay for work that is dangerous or imposes physical hardship which is not adequately alleviated by protective devices.

  • Hierarchies

    Organizational structures in which subordinate entities roll up to higher level entities. An organization can have multiple hierarchies used for different processes. For example, one hierarchy might define management reporting relationships used for performance and merit reviews. A different hierarchy might be used for tax reporting. Another hierarchy might reflect a project based structure that has special incentives tied to it. Another might be a matrixed compensation hierarchy, reflecting the fact that some pay decisions for an employee require multiple inputs. One employee can hold different positions in multiple different hierarchies.

  • High performance culture

    An organizational environment where individuals and teams consistently meet or exceed expectations through accountability, continuous improvement, and alignment with strategic goals. It is often reinforced by transparent performance management and equitable compensation practices, which together help motivate employees, recognize contributions fairly, and sustain long-term organizational effectiveness.

  • High performance culture

    An organizational environment where individuals and teams consistently meet or exceed expectations through accountability, continuous improvement, and alignment with strategic goals. It is often reinforced by transparent performance management and equitable compensation practices, which together help motivate employees, recognize contributions fairly, and sustain long-term organizational effectiveness.
    Read more
  • High performers

    Individuals who consistently exceed performance expectations, deliver strong results, and demonstrate behaviors aligned with organizational goals. They are often identified through performance management systems and may be prioritized in compensation planning, development opportunities, and succession pipelines due to their outsized impact on business outcomes.

  • HR analytics

    The ability to analyze employee data, such as demographics and compensation, to gain insights that can lead to improved retention, engagement, motivation, performance, and compliance. Dedicated compensation software often includes advanced analytics that can help keep costs in line with revenue, while maintaining a pay equity philosophy.

  • HR process improvement

    The systematic analysis and optimization of human resources workflows to increase efficiency, accuracy, and strategic alignment. It often involves streamlining tasks such as performance evaluations, compensation reviews, or pay equity audits through technology, data integration, and policy refinement to better support organizational goals and workforce needs.

  • HR suites

    Suites of software to manage common Human Resources tasks. See Human Capital Management (HCM) Software and Talent Management (TM) Software. HR suites may contain a compensation module, but these are generally not sufficient for managing large enterprise compensation.

  • HR technology

    The digital tools and platforms used to manage human resources functions, from recruitment and performance to compensation and compliance. It enables data-driven decision-making, operational efficiency, and improved employee experience. Specialized solutions, such as compensation and pay equity software, support fair and transparent workforce practices across increasingly complex organizational environments.

  • HR transformation

    The strategic rethinking and restructuring of human resources functions to align more closely with organizational goals and evolving workforce needs. It often involves modernizing processes, systems, and structures—such as performance management or compensation frameworks—and may include adopting technologies that support data-driven decision-making and pay equity.

  • HR Transformation

    The strategic rethinking and restructuring of human resources functions to align more closely with organizational goals and evolving workforce needs. It often involves modernizing processes, systems, and structures—such as performance management or compensation frameworks—and may include adopting technologies that support data-driven decision-making and pay equity.
    Read more
  • Human Capital Management (HCM) Software

    HCM software generally covers a broad range of HR tasks like recruiting, hiring, learning management, planning & administration, payroll, performance reviews, employee self-service, scheduling, absence management, analytics, and dispute management. While they may have a compensation module, they generally are not designed to handle complex enterprise compensation.

  • Hurdle

    See Threshold.

I

  • IFRS 15

    See ASC 606.

  • Incentive compensation management (ICM)

    The process of managing sales incentive compensation, including planning and modeling of plans, integrating the needed data sources, managing data, crediting of transactions, calculation of incentive payments, review and approval process, communication, dispute management, reporting and analysis.

  • Incentive Stock Option Plan (ISOP)

    A type of employee stock option that can be granted only to employees, with potential US tax benefits. Typically shares are offered to employees at a discounted price. ISOPs encourage employees to remain with a company and contribute to its growth in value and share price. See also ESOP - Employee Stock Option Plan.

  • Individual compensation planning

    Tailoring total rewards to meet the needs of individual employees. With a diverse and sometimes distributed workforce consisting of different generations of workers, individual compensation planning can help to engage and energize workers, and inspire loyalty. While in the past this would have been too burdensome to HR, now software can provide the analysis and intelligence needed to automate this task and suggest individualized rewards options. See also Personalized rewards.

  • Integrated compensation management system

    Compensation management that is integrated with other HR systems such as the central employee database, performance management, learning management, etc., such that the other systems can feed information that is relevant to the calculation of compensation.

  • Internal equity

    The fairness and consistency of compensation within an organization, ensuring that employees performing comparable work receive comparable pay, considering factors such as role, experience, and performance. It is a foundational principle in compensation management and a critical factor in maintaining workforce trust, engagement, and legal compliance.

J

  • Job grade

    A grouping or level that encompasses positions with the same or similar levels of responsibiity, impact, and authority, reflective of factors such as the knowledge, skills, and experience required by the jobs in that grade.

K

  • Key Performance Indicators (KPI)

    Quantifiable measures that demonstrate how effectively a company is achieving important business objectives. KPI achievement is based on attaining a certain KPI value by a certain date. KPIs are often used within calculations of variable compensation, such as bonus plans that may have components based on level of achievement of one or more KPIs, for example sales targets, customer satisfaction ratings, production goals, margin goals, etc.

  • Kicker

    See Accelerator.

  • Knowledge-based pay

    See Competency-based pay.

L

  • Long-term incentive (LTI)

    Incentive compensation that is earned and awarded now but delivers value later, such as deferred bonuses or stock options. Long-term incentive plans (LTIP) are used to encourage key employees to stay with the company.

  • Long-term incentive plan (LTIP)

    A compensation mechanism designed to reward employees, typically executives, for achieving sustained performance over an extended period. LTIPs often include equity-based awards or cash bonuses tied to long-term goals. Effective management of LTIPs requires transparency and consistency to ensure alignment with organizational strategy and support for equitable compensation outcomes.

  • Lump sum payment

    A payment to an employee, such as a bonus, that is paid all at once.

M

  • Machine Learning (ML)

    A data processing technology that uses algorithms to sift through massive amounts of data and find trends and patterns. For example, an ML process can look at data like employee demographics, roles, levels, job functions, fixed and variable pay, and market benchmark data, to find employees that are flight risks, and determine appropriate compensation remedies that may keep them on board. ML can also identify peers based on their role, geography, and other relevant attributes, and identify whether there are any pay inequities, then further determine whether those inequities could be the result of biases. (See also Artificial Intelligence.)

  • Malus

    The process of reducing or cancelling deferred incentive awards that have not yet vested. It is a requirement for many Financial Services companies by the UK and European banking regulations on compensation. Malus is intended to help to prevent misbehavior and excessive risk taking by punishing employees. It also helps align compensation to performance; malus may be applied to reduce compensation if an organization's performance has been below expectations.

  • Management by Objective (MBO)

    Basing variable compensation upon completion of clearly defined objectives. Objectives must be carefully structured to ensure that achievement of the incentivized behavior will lead to the desired organizational performance.

  • Merit increase

    An increase in wages based on the employee's assessed job performance or other measure of value. See also Promotion increase.

  • Merit matrix

    A grid used to provide guidance to managers in determining merit increases based on employee performance, sometimes also linked to the employee's position within a pay range for the role.

  • Metrics

    Clearly defined and quantifiable measures used to track and assess a given business process. Examples might include gross sales, gross margin, unit production, absentee rate, lead conversion, customer retention ratio, problem resolution time, returns, cost of sales, etc.

  • Modeling

    Creating variants of compensation plans so that they can be tested, analyzed, and approved. Ideally a model is based on real employee data and embodies the real world complexity of your compensation structures and calculations. Loading real performance data (historical or forecast) can help you see how the model performs in terms of total compensation cost, distribution, fairness, and ROI.

N

  • Non-discretionary pay

    Compensation that is contractually obligated or automatically given, such as hourly wages, overtime pay, or bonuses that are tied to measurable performance criteria.

O

  • Off-cycle plan management

    Compensation events that happen outside of regular compensation cycles. These can include promotions, retention actions, special performance recognitions, etc. They may require separate workflows and approval hierarchies.

  • OKR (Objectives & Key Results)

    A strategic framework used to set and track measurable goals within organizations. OKRs align individual and team efforts with broader company objectives, often informing performance assessments. In compensation contexts, they can support equitable, performance-based reward structures by linking outcomes to measurable impact rather than subjective evaluation.

  • On-Target Commissions (OTC)

    Commission earned if performance is at 100% of target or quota.

  • On-Target Earnings (OTE)

    Total fixed plus variable compensation an employee will receive if he/she achieves 100% of all variable compensation targets (bonuses and commissions).

  • Organizational effectiveness

    The degree to which an organization achieves its goals through efficient structures, aligned strategies, and a high-performing workforce. It encompasses how well systems such as performance management, compensation planning, and equity practices contribute to sustainable outcomes, employee engagement, and the organization’s overall ability to adapt and compete.

  • Override

    Commission on sales applicable to other parties besides the sales reps, such as sales managers or product managers, based on a percentage of the sales or commissions of the sales reps, as determined by the sales crediting plan. See also Roll-up.

P

Q

  • Quota

    A number that a sales rep is expected to achieve, typically expressed as revenue, but quotas also can be tied to sales volume or metrics/activities (net new customers, customer retention, etc.), or some combination of these factors. Commission rates may be tied to attainment of quotas, as with a tiered commission that pays a lower rate for sales below quota, and a higher rate for sales that exceed the quota.

  • Quota management

    The process of setting, tracking, and adjusting sales quotas or targets. Quota setting can be done through a top-down or bottom-up process, or a hybrid of the two.

R

  • Recurring revenue

    Revenue that is contracted to be paid over time, such as subscription or maintenance revenue.

  • Regularization of bonus

    See True-up.

  • Relative commission plan

    Commission plan based on a predetermined quota or target.

  • Restricted Stock Units (RSUs)

    Shares of company stock that vest over time or upon meeting performance criteria. These are common for executive compensation packages and are effective for retaining top talent. RSUs offer several advantages, such as delaying share dilution, aligning employee and shareholder interests, and promoting pay equity. While this form of equity compensation can be advantageous, it’s not suitable for all organizations. Before implementing RSUs, companies should thoroughly understand their advantages, drawbacks, and tax implications so the process can be properly executed and aligned with organizational goals.

  • Retro pay

    See Retroactive pay.

  • Retroactive adjustments

    Adjustments up or down to incentive earnings after initial payment was made. Can be necessitated by restated sales figures, returns, cancellations, clawbacks, etc. Requires careful tracking of transactions, earnings, payments by the compensation system.

  • Retroactive pay

    Compensation issued to an employee to correct underpayment from a prior pay period, typically due to delayed raises, miscalculations, or adjustments in pay rates. Effective compensation management systems help ensure retro pay is calculated accurately and transparently, maintaining compliance and supporting trust in payroll practices. See also Retroactive adjustments and Clawbacks.
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  • Revenue recognition

    The process of booking revenue according to financial accounting standards, such that revenue is recognized as the product or service is actually provided, regardless of when payment is received. See also the related regulations, ASC 606 / IFRS 15.

  • Rewards

    Any form of value provided to employees as a result of their employment, such as salary, bonus, stock, benefits, perquisites, gifts, prizes, and various forms of recognition.

  • Rewards cycle

    Period for which a given reward is calculated and processed, typically annually for salaries, monthly for commissions, quarterly or half-yearly or annually for short or long term incentives. A company may have multiple and overlapping rewards cycles.

  • Risk adjustment

    An adjustment to variable compensation to account for currently known risks or adverse performance outcomes. The known risk of the transaction that triggered the reward can be factored into the reward at time of payment. Ex-post risk adjustment refers to adjustments made to compensation after an adverse performance outcome, which may be the result of risks that have materialized (crystalized risk) or of misconduct. Ex-post risk adjustments include reducing current year awards, the application of malus, and clawbacks.

  • Role-based allowance

    A designated amount of pay applicable to designated roles, in cash or shares, over and above salary, which does not count towards pension and benefits expenses, and which may or may not be deferred over a vesting period. The European Banking Authority (EBA) ruled in 2015 that role-based allowances count as bonuses and therefore are subject to a cap. The term also can be used to refer to an allowance paid to an employee based on additional special responsibilities required to be undertaken as part of their position.

  • Roll-up

    In relation to sales commissions, a roll-up is a commission on sales applicable to parties above the sales rep in the sales reporting hierarchy, such as the sales manager or district manager, based on a percentage of the sales or commissions of the sales reps. Roll-down or roll-over is also possible, for example if sales by a sales manager results in commission payment to the subordinate sales team members. See also Override.

  • RSU

    See Restricted Stock Units.

S

  • Salary band

    The range of salaries, minimum to maximum, for a job grade. Typically influenced by factors such as job requirements, education, experience, geography, and job market conditions,

  • Salary compression

    See Wage compression.

  • Salary management

    The process of planning salaries and salary increases, which may involve job analysis, market research and benchmarking, developing job grades and salary bands, calibration, creating a budget, and managing the salary review and merit increase process.

  • Salary review

    The process by which an individual employee's pay is set for the forthcoming period. Typically done annually and referred to as the Annual Salary Review (ASR), the salary review is generally conducted by an employee's manager, taking into account the employee's past performance, role and goals going forward, and budgetary guidelines.

  • Sales crediting

    Assigning credit for a sale, and thereby the related commission, to the appropriate member or members of the sales team, according to a predefined set of business rules. Crediting can be as simple as assigning the full sale value to one rep, or can be more complex if split amongst multiple reps, or if there are team components applied based on territory or market segment. Crediting is the first crucial step in the sales incentive calculation process.

  • Sales incentives

    Any type of direct or indirect reward related to sales.

  • Sales objectives management

    The process of setting, tracking, assessing, and incentivizing sales objectives, beyond commissioning for sales. Objectives may include things like cross-selling, up-selling, customer retention, customer satisfaction, net new customers, product mix, new product sales, etc.

  • Sales performance management

    The process of managing sales performance, including planning and modeling of incentive plans, managing territories and quotas, integrating the needed data sources, processing sales data, crediting transactions, calculating incentive payments, reviewing and approving payments, communication, dispute management, reporting and analysis.

  • Scenarios

    Models that allow compensation administrators to alter variables in compensation plans or performance assumptions to see the result, as a way of testing and determining the optimum compensation plan. Sometimes called "What-ifs."

  • Sell to cover

    The selling of some shares of stock from a stock incentive award to cover tax liability for the employee.

  • Share Incentive Plan (SIP)

    A tax-advantaged employee share plan in which shares are held in trust on behalf of employees. All employees must be eligible to participate in the plan provided that certain criteria are met. May include free shares, partnership shares (paid for by employees out of pre-tax salary), matching shares (given by the company to employees who purchase partnership shares) and dividend shares (purchased with dividends from other plan shares). Was formerly known as the all-employee share ownership plan (AESOP).

  • Short term incentives

    Variable incentive payments that are paid when earned (as opposed to long term or deferred incentives).

  • Skill-based pay

    See Competency-based pay.

  • Sliding scales

    Commissions paid at different percentages for different volumes of total sales within a given time period. Can be based on units or value. For example, the commission rate is 10% of total sales up to $100,000 in sales, but 15% of total sales if sales exceed $100,000, and 18% of total sales if sales exceed $200,000. The scale can slide up or down; for example, an investment firm might pay lower percentage commissions on higher volumes because clients are charged lower commission rates for high volumes.

  • SPIF (Sales Performance Incentive Fund)

    A specially funded incentive program, usually temporary, to drive certain behaviors at certain times. Can take any form, such as cash bonus, contest prize, etc.

  • Split

    Sharing of sales credit and commission amongst two or more payees. The sales crediting process will split the credit and commission according to pre-defined business rules.

  • Stock option plan

    Reward plan that gives employees the right to buy their company’s stock at a set price after a certain period of time.

  • Straight line commission

    Commission plan that rewards a rep directly correlated to the percentage of quota reached. For example, if the rep attains 80% of quote, the payout is 80% of the full on-target commission amount. If the rep attains 125% of the quota, the payout is 125% of the OTC.

T

  • Talent Management (TM)

    TM software generally covers HR tasks related to acquiring, developing, and retaining talent, like workforce planning, talent acquisition & onboarding, performance appraisals, goal management, learning management, competency management, career development, and succession management. While many have a compensation module as well, they generally are not designed to handle complex enterprise compensation.

  • Territory management

    The process of designing and allocating sales territories amongst the sales team. Territories can be defined in terms of geography, industry vertical, product line, client size, client priority, etc. Well designed territories are necessary to provide proper sales coverage and motivating opportunity to sales reps. Automated territory management can allow for territory readjustment and optimization throughout the year.

  • Territory volume commission plan

    Commission is based on total sales within a territory during a given time period and is split amongst the reps that serve the territory, according to predefined business rules.

  • Threshold

    A minimum performance level that must be achieved in order to earn an incentive payment. Also known as a hurdle.

  • Tiered commissions

    Commissions paid at different percentages for different volumes of sales. Can be based on units or value. For example, the commission rate is 10% on units up to 1000 units, 15% on units from 1001 to 5000 units, and 20% for units exceeding 5000 units. Thus a rep who sells 6500 units would be paid 10%*1000 + 15%*4000 + 20%*1500.

  • Top-down budget

    A compensation budget that starts with a target total compensation spending number for the company, which is then allocated to departments, and then further allocated downstream within each department, to team and individual levels. Allocations typically take into consideration prior year compensation numbers, headcount projections, current goals and priorities, and performance expectations.

  • Total cash compensation (TCC)

    Total of all cash based compensation, fixed and variable, including salary, bonus, commission.

  • Total compensation package (TCP)

    Total value of all cash based compensation, long-term incentives, and benefits. (TDC + benefits)

  • Total direct compensation (TDC)

    Total of all cash compensation plus long-term incentive compensation (TCC + LTI).

  • Total guaranteed compensation (TGC)

    All components of the pay package that are guaranteed, including salary and benefits. Excludes variable compensation.

  • Total rewards

    All of the compensation, benefits, perks, recognition, and other value received by an employee. This should include sales incentive compensation, even when sales incentives are managed separately from other rewards. A compensation system should be able to generate total rewards statements that show the employee the full range and value of all rewards they are receiving.

  • Total rewards statement

    A report, usually monthly, showing an employee the full range of rewards earned and paid, monthly and YTD, preferably including or linked to information showing exactly how the rewards were derived, including any related performance metrics and calculations. In a dedicated compensation platform, these are generated automatically and available on demand.

  • Total rewards strategy

    Approach used by a company to utilize various forms of rewards to attract, retain, motivate, and align employees, with the end goal of fulfilling the mission and objectives of the organization.

  • True-up

    Adjustment or "regularization" of a bonus typically performed at year end to even out quarterly performance. If an employee missed some quarterly goals and therefore missed some quarterly bonus, but by year end has met the annual goal, an adjustment can be made at year end. For example, if the annual target was 100, with 25 each quarter, and the employee attained 15 each in Q1 & Q2 (missed goal) but then attained 30 in Q3 and 40 in Q4, the attainment was 100 for the year, meeting the annual target. An adjustment can be made to reward the annual performance, especially if the quarterly payments do not reward partial achievement and/or are capped and don't reward over achievement.

U

  • Unconscious bias

    Implicit attitudes or stereotypes that influence decisions, including pay and promotion, without conscious awareness. Can be avoided through tools that support data-driven decision making.

V

  • Variable compensation

    Compensation that is dependent upon results such as attainment of goals or targets. Bonus plans and Short Term Incentives fall into this category.

  • Vesting schedules

    Timing of when certain forms of deferred compensation become fully owned and accessible by the employee, such as stock options or deferred cash compensation. Vesting schedules give employees incentive to stay with the firm, as non-vested assets are generally forfeited if the employee leaves the company. Typical vesting periods are 3 to 5 years, during which the asset gradually becomes vested.

W

X

  • X-factor pay

    A colloquial term for additional compensation given for unique skills, rare expertise, or business-critical capabilities.

Y

  • Year-end compensation review

    The formal process conducted at the end of an annual performance cycle to assess employee pay, performance, and equity adjustments.

Z

  • Zero-based budgeting

    Method of creating a budget where each time you start from a zero base, rather than using the previous period's budget as a baseline and modifying. Even existing and recurring expenses have to be justified newly each time rather than automatically continuing or being increased. This approach is generally more time consuming and may have other shortcomings but is thought to be a method of keeping expenses lower.