SAP Knowledge Base Article - Public

2083966 - Admin 101 - Compensation Terms and Definitions - Compensation


  • Compensation Terms:




  • A fixed amount that is usually added to an employee's salary to bring their salary at par with company standards. Adjustments are usually granted to employees who are compensated relatively low within the pay grade.


Anniversary based Process

  • An event or planning process that occurs around the yearly anniversary date of each employee.


Bonus Pay

  • A variable component of pay that can be based on individual, group or company performance. Sometimes referred to as Short Term Incentive or Pay for Performance.


Calculation Engine

  • A compensation planning tool that you can use to assign formulas to columns in the compensation plan. Using the Calculation Engine you can set formulas ranging from simple calculations to calculations that map to complex business processes.


Column Designer

  • A compensation planning tool that you can for adding columns to your compensation plan. Using the Column Designer, you can not only add standard columns but also customized columns that cater to your company's requirements.



  • An internal comparison that compares an individual's pay with a market anchor or pay range midpoint.
  • Compa ratio is calculated as follows:
  • (Employee pay or average salary) divided by (midpoint of pay range)
  • For example, if an employee is paid $34,250 and the salary mid point level is $37,590, the employee would be approximately 9 percent below midpoint — calculated as 34250/37590=.09.


Compensation Form Template

  • A configuration file which contains all the guidelines that pertain to a compensation process, usually for the whole organization. The guidelines within a template include general display configurations (ex. Labels), as well as all the guidelines which may vary for different groups of people that differ by pay grade, performance etc. A compensation form template is similar to a form template (that is edited in the provisioning tool).


Compensation Form

  • A compensation form is an instance of the compensation form template. Like a Performance Review form, this form can be routed through different stages, such as modify, signature, and completed. In a normal compensation process, a compensation form is created for each compensation planner, usually a people manager, which then goes through the configured workflow until it is completed.


Compensation Planner

  • A user within the application that has the permissions to make compensation recommendations on a compensation plan, usually the direct manager. In some cases, the second level manager might be involved too.


Eligibility Engine

  • A compensation planning tool that allows you to create business rules that work as filters. These filters help you determine who belongs to which group and whether the group is eligible for merit raises, salary increases, promotions, and so on.


Focal Process

  • A compensation planning event for a group of employees that happens in the same period of time. For example, compensation planning for the company happens in December.


Focal Salary Planning

  • All employees within a specific group receive compensation adjustments at the same time as against their anniversary date.


Guideline Matrix

  • A compensation planning tool that you can use to set rules for a manager to work within. Using the calculation engine, you provide minimum, mid point and maximum values for a manager to work within.


Long Term Incentive

  • See Stock Compensation.


Lump Sum

  • Fixed amount that increases compensation, but does not affect the base salary; used usually for employees compensated relatively high within the pay grade.


Market Index

  • An external comparison that compares a range midpoint with data for the market average pay.



  • An increase applied to current salary typically based on performance rating and current pay relative to benchmark.


Merit Matrix

  • Matrix whose entries provide guidelines to merit increases depending on the performance rating.


Off-cycle Adjustments

  • Pay changes that take place outside of the focal planning period. For example, a Promotion or job change.


Pay grade (Job Grade)

  • Groups in which jobs of the same or similar value are grouped for compensation purposes. Usually all jobs in a grade have the same pay range: min range, mid range, and max range.


Pay for Performance

  • See Bonus Pay.


Range Penetration

  • The level of an individual's pay compared with the total pay range.
  • Range Penetration is calculated as follows — (Employee's Pay - Min Range) divided by (Max Range - Min Range) .
  • Consider the following example:
  • Employee's Pay — $34,250
  • Min Range — $31,068
  • Max Range — $44,112
  • In this example, ($34,250-$31,068) divided by ($44,112- $31,068) is equal to 0.24, which works out to 24% range penetration.


Short Term Incentive

  • See Bonus Pay.


Stock Compensation

  • Optional compensation element used to allocate stock or stock options to eligible employees. Sometimes referred to as Long Term Incentive.


  • Compensation


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