Abreviatura de opções de ações não qualificadas

Apêndice: Glossário de gírias militares.

A gíria militar é um conjunto de termos coloquiais que são únicos ou originários de militares. São frequentemente abreviaturas ou derivados do Alfabeto Fonético da NATO, ou incorporando aspectos de conceitos e termos militares formais. A gíria militar também é usada para reforçar as rivalidades interservice (geralmente amigáveis). Alguns desses termos foram considerados gregários em graus variados e tentativas foram feitas para eliminá-los.

Para os propósitos deste artigo, "gíria militar" inclui gírias usadas por quaisquer forças armadas de língua inglesa (exércitos, marinhas, forças aéreas).

TIG: solo de entrada apertado.

(Marinha dos EUA) Qualquer suboficial principal, cuja insígnia é uma âncora. . e um wake-up (EUA) Termo usado após um determinado período de tempo para fazer referência a quantos dias ou relógios completos, além do tempo gasto no último dia que um membro do serviço tem antes de um turno de trabalho ou evolução de campo ser concluído, por exemplo: "Dois dias e um despertar, e eu vou embora!" Annie Laurie (Br, WW1) transporta para longe da frente (trocadilho com "qualquer caminhão") o mecanismo animal (AUS, Vietnã) para detonar até 20 claymores de uma vez (também "The Monster") outro maldito exército Gíria interna para o Artilharia de Defesa Aérea (ADA) por causa de suas estruturas de unidade incomuns e padrões over-the-top. Veja igualmente: Arsapeek falsificado da infantaria (exército australiano, WW1) cabeça sobre calcanhares Archie (britânico, WW1) Antiaircraft (arma ou fogo; no plural, armas) vaca blindada (AUS, WW2) Banjo do exército do leite enlatado (exército australiano, WW1-1960s ) Arremesso de grama do exército da ferramenta Entrenching (EUA) UH-60 Helicóptero Black Hawk. Nomeado por sua incapacidade de permanecer no ar. Também conhecida como uma prova do exército "Crash Hawk" (Força Aérea dos EUA) Explicada em termos muito simples e fáceis de entender; muitas vezes com fotos. Derivado de morangos do exército "Fool Proof" (Força Aérea dos EUA, WWII) Prunes. como você era / como eu era (EUA) Retorne ao que você estava fazendo. A segunda versão é reconhecer que a ordem foi dada por engano, particularmente durante a perfuração. Veja também "belay my last". asino morto (Italiano) "Burro Morto", termo para presunto enlatado. Veículos blindados. "Nós estaremos dirigindo atrás de muita bunda hoje." Por exemplo: tanques, etc. Asses e cotovelos (U. S.) Um estado em que todos estão ocupados, como durante a limpeza. Dispensa ASVAB (EUA) Um serviço lento ou estúpido; faz referência ao teste de entrada de inteligência e habilidades do ASVAB, cujos resultados foram supostamente dispensados ​​para permitir o alistamento do referido serviço militar. À vontade (EUA) Relaxe; também, "como você era". Geralmente, um reconhecimento por parte de um superior (especialmente comissionado) para o pessoal júnior que entra em ação ou atenção. come-up (U. S.) refere-se a um membro do serviço que está excessivamente preocupado em seguir todos os regulamentos ao pé da letra, geralmente com pouca consideração pela situação. Também usado para descrever um soldado que tenha pouco ou nenhum rolamento militar. "Airman Dummy é devorado com o idiota." Em alguns E. U.A. F. Os departamentos de bombeiros, “come-up” muitas vezes se referiam a bombeiros quase exagerados com seu entusiasmo por todas as coisas relacionadas ao combate a incêndios, a ponto de serem ridicularizados por outros bombeiros, ficam animados quando os sinos disparam e decepção quando eles não conseguem responder também. Em seu primeiro turno, eles perguntaram se deveriam dormir com suas botas, mas em um supervisor pode ser um inferno trabalhar para essas pessoas, já que elas são grandes defensoras do “trabalho ocupado”, trabalho feito com o único propósito de “parecer” com você está fazendo alguma coisa. Participar B (Cingapura) Escrito de forma abreviada como ATTN B; o pessoal é dispensado de treinamento extenuante ou físico, mas é obrigado a estar presente para o treinamento ou classe e deveres leves. Participar C (Singapura) Escrito de forma abreviada como ATTN C; o pessoal dispensado de treinamento está no status Atender C e considerado inapto para todos os deveres. piloto automático (Força Aérea dos EUA) usado para descrever quando um voo ou outra formação de marcha executa uma manobra, como um movimento de flanco ou coluna, sem que o comandante emita a ordem para tal movimento. Normalmente feito durante o treinamento para evitar um obstáculo, como uma árvore ou MTI. Além disso, "marcha de piloto automático".

(U. S.) A promoção é recebida devido à morte da pessoa que preencheu essa posição anteriormente.

blooper (Exército dos EUA e Corpo de Fuzileiros Navais) Gíria da Era do Vietnã para o M-79 Grenade Launcher. Sugerido pelo som que fez ao disparar. explodir o DCA (Marinha dos EUA) A diretriz, dada como uma caça de narceja (compare com 'limpador de olhos'), que os novos sub-tripulantes são freqüentemente dados em uma falsa emergência. Depois de muita procura pelo DCA, eles descobrem que o DCA é uma pessoa, o Assistente de Controle de Dano (geralmente um oficial subalterno). (Nota: Muitos tanques de submarinos a bordo são pressurizados com ar comprimido e "soprados" ao mar. Esses tanques são geralmente identificados por abreviações ou siglas e sempre exigem permissão antes de serem "soprados".) Falcão azul (EUA) "buddy fucker" isto é, aquele que não ajuda um soldado, ou que intencionalmente recebe um soldado em apuros. A frase "Bravo Foxtrot" também é usada e tem o mesmo significado. blue-head (U. S.) um termo para um novo recruta nas primeiras semanas do treinamento. Os novos recrutas têm a cabeça raspada e a cabeça do recruta particularmente branca parece azul devido aos vasos sanguíneos. trabalho azul (Canadá) Um membro da Força Aérea; deriva do seu uniforme azul. Pejorative (provavelmente deliberadamente semelhante ao "boquete"). nariz azul (Marinha dos EUA, fuzileiros navais) Qualquer um que tenha servido acima do Círculo Polar Ártico ou tenha participado de uma cerimônia semelhante à da cerimônia Shellback (ver Shellback) força azul (exército ou força aérea dos EUA) A força amistosa, o oposto da OpFor. azul em contato azul (EUA e U. K.) Um incidente de fogo amistoso. blue suiter (Força Aérea dos EUA) Um termo geral para o pessoal da Força Aérea, freqüentemente usado para distinguir entre um ambiente misto de serviço ativo da Força Aérea e civis e contratados do Departamento de Defesa. blues (Força Aérea dos EUA e Corpo de Fuzileiros Navais dos EUA) uniforme do Corpo de Fuzileiros Navais Blue Dress. O Uniforme de Serviço da Força Aérea. Ocasionalmente, os uniformes Navy Dress e Winter Blue, que na verdade são pretos. Amigos do blues (Força Aérea dos EUA) Um par de homens da Força Aérea que freqüentemente deixam a base juntos em seus blues durante o treinamento. BMO (U. S., 1991 Guerra do Golfo Pérsico) Black Moving Object, ou uma mulher em uma burkha. Também se refere ao Oficial de Motores do Batalhão em um barco da unidade mecanizada 1. (Marinha dos EUA) Um submarino. 2. (Aviação Naval dos EUA) Um navio no qual a aeronave é desembarcada. 3. (Exército dos EUA) Primeira Linha de Carga de Mineração de Carga que foi literalmente um pequeno barco que foi arrastado para trás de um veículo de reboque. A versão atual é montada em um trailer. 4. (Canadá) um submarino. mandril de barco (Marinha dos EUA) Termo depreciativo usado pela comunidade de aviação para qualquer membro da empresa de um navio. Bobo (Cingapura) Um soldado que não consegue acertar o alvo no alcance do rifle. Esta é uma pronunciação Singlish de "WOWO", que significa "lavar". BOHICA "Curvar-se, aqui vem de novo." usado quando exaustivamente contemplando decisões idiotas ou maliciosas de altos escalões. Bone (Força Aérea dos EUA) B-1B Bombardeiro (U. K.) Estúpido ou sem sentido, "Bem, isso era uma questão de osso" Bones (EUA) Qualquer médico militar, especialmente na Marinha. Provavelmente derivado de Sawbones. Esmagadores Ósseos (Corpo de Fuzileiros Navais dos EUA) Um termo que geralmente distingue os Marines superiores classificados como Corporais em autoridade sobre Marines de nível inferior. bolo (Exército dos EUA) 1. uma afronta no início do século XX para recrutas que não conseguiam atingir um grau adequado de pontaria. Vem da ideia de que eles devem pegar um bolo e atacar corpo-a-corpo. 2. (BOLO todas em maiúsculas) Esteja no boom boomer 1. (Marinha dos EUA) Um submarino de míssil balístico nuclear ou pessoal servindo a bordo. 2. (Força Aérea dos EUA) Um membro da tripulação alistada servindo em um KC-135 'Stratotanker' ou KC-10 'Extensor', principalmente responsável pelo reabastecimento de outras aeronaves em vôo. Derivado de "operador de som". boomstick Usado divertidamente entre a infantaria quando não em volta dos superiores para descrever uma espingarda que rompe. "Nós estamos indo em algumas incursões hoje à noite. Certifique-se de trazer muitas conchas para o boomstick." Derivado do filme de Bruce Campbell "Army of Darkness". boot, booter (U. S.) Um novo join para uma unidade em particular, provavelmente vindo do Boot Camp (veja abaixo). Essa pessoa muitas vezes tem uma disposição excessivamente entusiástica, mas ingênua. Boot Camp (U. S. Marine Corps e Marinha dos EUA) Formação inicial de novos recrutas. Booter (U. S.); Bootnecks, Booties: (Reino Unido) Royal Marines, do couro que costumavam usar em volta do pescoço (mesma origem dos Leathernecks do Corpo de Fuzileiros Navais dos EUA). botas e utes (ou "boots'n'utes") (Corpo de Fuzileiros Navais dos EUA) Botas de combate e uniforme de utilidade, menos a blusa; às vezes usado para treinamento físico ou trabalho em ambientes quentes. bandas de inicialização (ou "bandas de blousing") (Corpo de Fuzileiros Navais dos EUA e Canadá) Correias elásticas ou molas helicoidais usadas para enrolar a calça da calça embaixo da bota e simular o encaixe na própria bota; usado em botas blousing. BOSNIA (Marinha dos EUA) Big Old Standard Navy-Issue Ass. Aplica-se especialmente às mulheres alistadas. comprou a fazenda (EUA) Originalmente vem da Força Aérea dos EUA, onde foi uma gíria por um acidente fatal, em que a "fazenda" se referia ao pequeno terreno no cemitério onde o indivíduo foi enterrado, então geralmente qualquer KIA GI cujo dinheiro do seguro paga as contas do funeral da família. Bouncing bomb (U. K.) Emitir saco de dormir Boss (Reino Unido) Endereço informal e respeitoso para um oficial - especialmente usado em situações onde a revelação do status militar não é aconselhável. Box Kicker (Marinha dos EUA) Um termo usado, às vezes de forma depreciativa, para um Oficial de Suprimento. O termo implica que tudo o que um Oficial de Suprimento faz é contornar as caixas de checagem do armazém, não fazendo nenhum outro trabalho. (Corpo de Fuzileiros Navais dos EUA) Um almoxarifado, MOS 3051. Caixa Nasty (Força Aérea dos EUA, Marinha, Corpo de Fuzileiros Navais) Caixa Almoço servido durante o vôo. BPAG (AUS) Black Plastic Exército Gun. O rifle M16. bronze (EUA e U. K.) oficiais de alto escalão; Os poderes que são. Bravo Foxtrot (Naves Mundiais) (BF) Significa 'Pronto (para xxx) (em yyy)' (geral 'Pronto para Ação'). Vem do Livro Tático e de Manobras Marítimo Aliado, transportado por guincho de bandeira ou rádio de voz. Bravo Zulu (Worldwide Navies) (BZ) Significa "bem feito". Vem do Livro Tático e de Manobras Marítimo Aliado, transportado por guincho de bandeira ou rádio de voz. balde de cérebro (EUA, Canadá) Capacete de combate. esponja cerebral (U. S.) Qualquer chapéu de combate que não forneça proteção. (por exemplo, um boonie hat) de rato-brig (Corpo de Fuzileiros Navais dos EUA e Marinha dos EUA) Descreve um marinheiro ou fuzileiro naval que freqüentemente freqüenta o brigue (cadeia militar), normalmente como prisioneiro. Quebrou-pau (U. S.) Um soldado com uma condição médica que impediria a habilidade do Soldier de executar certas tarefas; alternativamente, equipamento que não esteja operacionalmente pronto. TV quebrada (Exército dos EUA) O terceiro emblema da Divisão de Infantaria, um quadrado azul com três listras brancas na diagonal. Exército de vassouras (Exército dos EUA) fala para 'varrer'. usado no mesmo sentido que você esfrega com um esfregão, portanto, você vassoura com uma vassoura. brownjob (RAF) Membro do exército britânico, a partir dos uniformes cáqui. Brown Water Navy (U. S.) A frota de embarcações ribeirinhas - barcos de patrulha rápida, anfíbios. embarcações de desembarque, navios de abastecimento e manutenção de calado raso, cortadores da Guarda Costeira dos EUA e afins - que haviam sido utilizados para controlar os rios e as costas do Vietnã durante a Guerra do Vietnã, tão conhecidos pela cor marrom-lama da água. Hoje, qualquer força naval ribeirinha. sapato marrom 1. (Força Aérea dos EUA) Coisas e pessoas relacionadas à época em que o Air Corps era uma unidade subsidiária do Exército dos EUA. Quando a Força Aérea se tornou independente, os sapatos pretos substituíram os sapatos marrons usados ​​pelo Exército naquela época. 2. Também se refere ao serviço do Exército dos EUA antes da era do Vietnã "Você estava no exército de calçados marrons" quando mudou para botas de combate / selva e bairros baixos. 3. (Marinha dos EUA) Coisas e pessoas relacionadas à comunidade de aviação naval. A partir do momento em que os sapatos marrons foram autorizados apenas para as classificações de aviação e oficiais. aglomerado estelar marrom 1. (EUA) Uma referência escatológica metafórica que descreve uma reação de pânico. Um jogo no aglomerado de estrelas vermelho; a implicação humorística é que a defecação assustada do sujeito serve como uma chamada de socorro substituta. 2. (EUA) Alternativamente, pode se referir a advertir ou sinalizar a outros que coisas sendo ditas ou feitas são "besteiras". Pilotos da Força Aérea Britânica de Brylcreem Boys (Reino Unido), que eram conhecidos por usarem brylcreem em seus cabelos ("Um pouquinho dab'll ya!"), Se originaram durante a Segunda Guerra Mundial. bubblehead Qualquer pessoa servindo em um submarino ou no Serviço Submarino (uma referência à doença descompressiva). buddy spike (Força Aérea dos EUA e Marinha dos EUA) usado durante operações de voo. Nos exercícios aéreos, é comum "picar" ou trancar um amigo sem se envolver. Isso faz com que os sistemas de defesa da aeronave alvo avisem sobre a segmentação ativa. "Buddy Spike" é um termo usado para tranquilizar a aeronave "cravada" que a trava veio de uma aeronave amigável. Por exemplo: suponha que você estivesse lutando em um exercício como o ar azul com o ar vermelho oposto tentando atirar em você. Se você recebeu uma notificação no seu RWR de que uma aeronave havia trancado você, você gostaria de saber se era do ar vermelho ou apenas do seu ala. Então você pode chamar "HOOTER 01, com 300 (graus)" e Hooter 02 pode chamar "Buddy spike!" ter trancado você sem querer, ou para ajudá-lo visualmente, etc. Esse termo foi usado, de forma incorreta, no filme Os Incríveis. Sargento Buck (Exército dos EUA) Referindo-se a um recém-promovido Sargento E-5. Pode ser usado em diferentes contextos, bons ou humilhantes. buckshee (Reino Unido, Canadá) Sobressalentes, não oficiais. Buckshee equipamento ou munição está fora do sistema de contabilidade normal e é frequentemente permutado por aqueles que se encontram na posse dele. A origem e a natureza das lojas determinam se isso é sério. questão. Da Primeira Guerra Mundial, quando pedaços de sabão de barbear são chamados de "buckshees". Derivado de Baksheesh e do exército britânico na Índia BUFF (U. S.) Big Ugly Fat Fucker. (Limpo: Big Ugly Fat Fellow). Gíria para o B-52 'Stratofortress'. Buffer (Reino Unido e Canadá) Chefe Bosun's Mate, Sênior Boatswain (especialista em marinharia) em um navio de guerra, geralmente com o posto de Chief Petty Officer. Bug Company (Marinha dos EUA) No boot camp, uma empresa (grupo) de recrutas que são incapazes de realizar qualquer tarefa corretamente, independentemente das recompensas ou consequências. Geralmente, os indivíduos que compõem essas empresas deixam o campo de treinamento em estado físico superior, porque estão sempre sendo punidos com treinamento físico, também conhecido como "ciclismo". Suco de Inseto (U. S.) O apelido dado à bebida em pó servida com MRE em navios a bordo. Praticamente qualquer substância semelhante a suco, em pó, com sabor artificial, servia no refeitório de quase todos os ambientes masculinos do Acampamento dos Escoteiros, passando pelos Militares. anteparo (Marinha dos EUA, fuzileiros navais, RCN) O divisor estrutural interior de um navio; usado em terra para se referir às paredes interiores de um edifício, também. Uma bomba de infantaria, MOS 11B "Eleven Bulletstopper", mais comumente o homem de ponta de uma equipe de fogo de infantaria que geralmente é o primeiro membro da equipe a se envolver, ou ser contratado pelo inimigo. Bull Ensign (Marinha dos EUA) Oficial júnior sênior do posto de Alferes (o-1) no elogio de um navio. O touro Ensign muitas vezes é incumbido pelo Comandante de tarefas desagradáveis ​​que outros oficiais subalternos prefeririam evitar. Bull Nuke (Serviço Submarino da Marinha dos EUA) Membro sênior da Divisão de Engenharia a bordo de um submarino, geralmente um Subchefe Sênior ou Master Chief Officer (E-8/9). Bullshit flag, jogando o (U. S.) Desafiando a precisão factual da declaração de outro. Bum Chum (EUA, Canadá, Austrália) Termo pejorativo para um marinheiro naval. Refere-se à homossexualidade do marinheiro estereotipado. papelada de Bumf (U. K.), papelada especialmente inútil; provém de forragem para animais (isto é, serve apenas para uso como papel higiênico). Luvas Bundeswehr (Reino Unido) Bolsas, da percepção de que os membros do exército alemão frequentemente andam com as mãos neles (proibidos na maioria dos serviços armados da OTAN - incluindo o Bundeswehr. Soldados alemães capturados por um superior com as mãos nos bolsos são normalmente perguntado "É seu aniversário? Porque você está segurando a sua vela."] Cama de Camada (Exército dos EUA). Bunker Bunny (U. S.) Alguém que se parece com o modelo cuspir e polir Soldier, Marine - mas não manchar sua imagem aventurando-se além da segurança de um local seguro, veja também "Fobbit". terno do coelho (Canadá) CBRN (Químico, Biológico, Radiológico, Nuclear) naipe de terno (Marinha da Royal Navy e Commonwealth) Um sinaleiro. butterbar (U. S.) Um segundo tenente ou alferes, em referência à insígnia de classificação - uma única barra de ouro. listras de borboleta (Força Aérea dos EUA) Termo usado para se referir à divisa listrada de Airman First Class, geralmente concedida a um alistado de seis anos imediatamente após sua escola técnica ou a um alistado de quatro anos após 10 meses no posto de Airman. (veja também "asas da libélula"). BZ (Marinha) Além disso, Bravo Zulu. Livro de Sinais Aliados (ATP 1) para "Bem Feito". B. B. Stackers (Força Aérea dos EUA) Tropas de munição. (U. S.Navy) Ordnancemen da aviação.

2. Por extensão de (1), um novo recruta.

2. Por extensão de (1), as insígnias das Forças Canadenses em geral. Corpo (U. K.) Endereço informal para um Cabo Corporal ou Lance-Corporal. COTDA (Exército dos EUA) significa "Case Of The Dumb Asses". Falado em contexto completo e abreviação. Bem humorado. e síndrome imaginária ou doença, muitas vezes brincou com qualquer soldado que cometer erros acidentais ou esquece alguma coisa. Exemplo: "Você foi para casa ontem à noite e viu um caso dos idiotas burros (ou COTDA)?" Country Club Academy (EUA) Um termo pejorativo usado por cadetes da Academia Militar dos Estados Unidos e aspirantes da Academia Naval dos Estados Unidos para se referir à Academia da Força Aérea dos Estados Unidos. Refere-se à percepção de padrões mais relaxados de disciplina militar, e as condições de vida geralmente menos espartanas para os cadetes, no AFA, em comparação com as outras academias. cubra (U. S.) Chapelaria militar de qualquer tipo. caranguejo (U. K.) Referência a caranguejos de pessoal da RAF (Cingapura) Referência a oficiais graduados de patente maior, tenente-coronel ou coronel, cujas insígnias são respectivamente um, dois ou três Cristas de Estado, o esboço de cada um parecido com um caranguejo. (Reino Unido) Refere-se à Força Aérea Real Britânica, devido ao fato de o uniforme azul ser da mesma cor do pó usado para tratar os caranguejos. caranguejos dentro de uma gaiola (Cingapura) Um termo depreciativo para descrever oficiais de garantia cujas insígnias de classificação são uma crista estatal encerrada em um semicírculo e divisas com o número de divisas denotando níveis mais altos. Às vezes usado para demitir um oficial de autorização que é conhecido por ser muito arrogante e proliferar no uso de sua autoridade. manivela (Marinha dos EUA) Um marinheiro alistado que está fazendo serviço temporário na cozinha de um navio. Na maioria dos navios / sub-alistados juniores trabalharão em tempo integral por muitas semanas ou meses na cozinha fazendo tarefas domésticas como lavar louça ou esfregar o chão antes de voltar à sua taxa e divisão designadas. "Cranking" ou "Mess cranking" é um verbo para esta situação. Cranking pode ser usado ocasionalmente como um método de EMI. (Veja IME) SAS (Regimento de Pára-quedas) ou Regimento de Pára-quedistas descrevendo outros regimentos do Exército Britânico como menos que elite, derivados das distintivas boinas SAS e Parachute, que são de cor diferente de qualquer outro regimento. crunchie (exército dos EUA) Termo usado por um tripulante de tanque para descrever um soldado de infantaria desmontado, derivado do som que eles fazem quando o tanque rola sobre eles. brigada de muletas (Exército dos EUA) uma unidade de separação de retaguarda, geralmente cheia de soldados que são incapazes de implantar devido a problemas médicos ou legais. Uso adequado do CS & MO (U. S.): Close Station, March Order. Alternativamente, "CSMO": Colete [sua] merda e saia. Boné de captura (Exército dos EUA, Força Aérea dos EUA) O boné de guarnição plano, do tipo frequentemente visto debaixo de uma dragona de ombro nos filmes. Particularmente descritivo da versão feminina desta tampa descontinuada no final dos anos 1970, que tinha uma dobra invertida na coroa. Também chamado de "cortador de mijo". Cum-dumpster uma boca. Termo geralmente usado por instrutores de treinamento para criar um senso de domínio sobre os recrutas, por exemplo, "cale a porra da sua caçamba de lixo!". Cunt Hair (Exército dos EUA, Marinha dos EUA) um pequeno incremento como em "Mova o cabelo da boceta para a direita". Cycled (U. S. Navy) ou "getting cycled" No boot camp, o ato de ser "vencido" pelos comandantes de sua companhia via extenuante. work-out, ou sessões "PT". O ciclismo normalmente ocorre depois que um membro ou toda a empresa cometeu algum tipo de erro, seja na perfuração, no treinamento, etc. O ciclismo não tem limite de tempo, ele dura o tempo desejado pelo comandante da empresa e pode incluir qualquer treinamento físico que foi imaginado. Muitas vezes, os comandantes da empresa fazem com que seus recrutas coloquem várias camadas de roupa, enquanto fecham as janelas e desligam os ventiladores, etc., em um esforço para fazer com que "chova dentro de casa". Lore estados de "fabricantes de chuva", os comandantes da empresa, muitas vezes rumores de estar no comando de outras unidades que farão aparições em ciclos, em um esforço para alcançar os resultados de "chover dentro de casa", devido ao fato de que o suor dos recrutas faça com que a condensação se acumule na sala e vaze dos tetos. Veja tekan e quarterdecking. "

(AUS) Eu pareço dar uma foda? Semelhante como acima Dink (U. S.) Um termo pejorativo para um soldado inimigo asiático, usado extensivamente durante a Guerra do Vietnã. Mais recentemente, significa inadimplência de alguma forma, ou seja, não de acordo com os padrões de progresso em qualificação de treinamento. Dirt Nap (Aviação Naval) Voando com a aeronave e a pessoa no chão. Flat Hatting deu errado. cinto de discoteca (Força Aérea dos EUA) Um cinto refletivo usado ao redor da cintura em linhas de vôo de aeronaves. Fosso (RAF) colidir com o mar Dittybopper (exército dos EUA) Um operador de rádio de inteligência de sinais treinado para interceptar transmissões de código Morse. Como um verbo, "Dittybopping" é usado para descrever um Soldier ou Soldiers que estão marcando fora do tempo com a cadência sendo chamada. DNF (U. S.) Partida do voo normal. Prazo para quando um piloto perde o controle de sua aeronave. DNKH (U. S.) Damn Near Killed Himself / A própria. doc Um médico. Dog Fuck (Canadá) Para fugir de seus deveres. dogface (EUA) Um soldado de infantaria do Exército dos EUA, comum na Segunda Guerra Mundial, também um soldado da 3ª Divisão de Infantaria, eles cantam a "Canção Dogface Soldado" todas as manhãs; agora este ou "doggy" é usado por um fuzileiro naval para referir um soldado do exército. burro pau 1 (exército dos EUA) A seção inferior de uma antena de rádio PRC-25/77.

2. Um bocal de combustível destacável para recipientes de combustível de 5 galões. Veja "cavalo galo" abaixo.

3. Uma escova de limpeza de argamassa.

4. Por extensão, qualquer objeto cilíndrico longo.

5. (Engenharia Civil da Força Aérea dos EUA) Uma ferramenta de vibrações elétricas com um longo eixo vibratório cilíndrico usado na construção de concreto para remover as bolhas de ar do concreto. Donkey Walloper (Reino Unido) Cavalaria DONSA (Exército dos EUA) Um dia sem atividade programada. lançador de granadas de lançamento de anel aerofólio (Exército dos EUA). Um dispositivo que se encaixa no final de um fuzil M16 que disparou uma bala de borracha em forma de donut usada no controle de tumultos. Doolie Um cadete de quarta classe (calouro) na Academia da Força Aérea dos Estados Unidos (também chamado de "SMACK"). Dope Acrônimo de dados em equipamento pessoal (locais e configurações de elevação / windage para rifles de precisão). Outro uso inclui informações / inteligência sobre a posição de um alvo ou informações sobre um objetivo. Força Aérea / Marinha Uso de 'Bogey Dope' para solicitar a posição (rumo, alcance, altitude e rumo) da aeronave inimiga. Dope On A Rope (Exército dos EUA) Um insulto aplicado aos soldados de assalto aéreo. Usado principalmente por unidades aerotransportadas. Dorm hoe ou dorm slut (Força Aérea dos EUA) usada para uma mulher que é conhecida por sua promiscuidade em torno de dormitórios e instalações de hospedagem. Dot (Exército dos EUA) Um cadete do ROTC. Refere-se à insígnia de classificação em forma de disco. Derrogatório anão de dois dígitos (U. S.) Um membro de serviço que tenha menos de 100 dias até que o seu alistamento termine, ou o tempo até que a rotação fora de uma área de combate chegue. Dupla Ugly (EUA) apelido para o F-4 Phantom II. doughboy (EUA) Um soldado do exército dos EUA. Este termo é quase exclusivamente usado no contexto da Primeira Guerra Mundial. "GI" foi o termo durante a Segunda Guerra Mundial. asas de libélula (Força Aérea dos EUA) Refere-se à divisa de duas listras de um Airman First Class. bebe (RAF) motorista de mar / oceano (Força Aérea dos EUA) Um operador de aeronave de combate, isto é, piloto (exemplo: "Sou um Eagle Driver", um piloto do F-15 Eagle ou um "Viper Driver", um F - 16 piloto, unidade em (Exército dos EUA) Realizar a missão Cair (EUA) Um termo do Exército ou da Força Aérea usado para descrever punição por treinamento físico (geralmente flexões) "O DI soltou dingleberry por 20 depois que ele fodeu no curso! "dropshort (UK) Um artilheiro, ou a artilharia em geral. Artilharia, muitas vezes disparar sobre as cabeças de tropas amigas, que certamente não apreciarão uma rodada que cai brevemente. Também" Dropshot ". DROS (Exército dos EUA). Data Retornado de Dual-service (US Marine Corps) Uma frase para um fuzileiro naval, geralmente Recon ou Force Recon, que ganhou tanto o Scuba Bubble quanto o Gold Jump Wings. Artilharia de Defesa Aérea Duffle Bag (Forças de Segurança da USAF) Um aviador com um uniforme desarrumado, Airman Blank parece uma mochila. Ativo) Alguém da região do deserto Irã / Iraque. Veja também Sand nigger abaixo.

Um oficial de sinal. FLAK (WW2) 'Fl'ug'a'bwehr'k'anone - Alemão para "canhão de defesa aérea". Gíria da Linha de Vôo (Força Aérea dos EUA) para qualquer área restrita na maioria das Bases da Força Aérea onde as aeronaves estão estacionadas para manutenção geral. Equivalente a um avental do aeroporto. Risco de Voo (U. S.) Termo usado para se referir a um oficial de grau O-6 (Coronel / Capitão) ou superior nos controles de uma aeronave. voando em uma mesa (RAF) Trabalhando como oficial de equipe ou administrador; pode ser usado pejorativamente ("tudo o que ele faz é voar em uma mesa") ou simplesmente se referir a um piloto que tenha sido colocado em tal trabalho ("Eu estou pilotando uma mesa no MOD hoje em dia"). flump Fat Preguiçoso Desmotivado Pussy. FM (EUA e Reino Unido) "Fucking Magic". usado para descrever por que um dispositivo eletrônico defeituoso começa a funcionar de maneira inexplicável. FNG (EUA) "Fucking New Guy (ou Girl)". Um dos muitos termos usados ​​para descrever uma nova chegada a uma unidade. Programa Alimentos para a Liberdade (Exército dos EUA) Em que um soldado ganha tanto peso que é expulso do serviço. Como em: "Ele é tão gordo". "Sim, ele está no programa de comida pela liberdade". fobbit (EUA) Razoavelmente novo termo usado para descrever soldados que não saem da Base de Operações Avançadas (FOB) no Iraque, ou um soldado estacionado no Iraque que não tenha visto combate. Derivado de J. R.R. Hobbit de Tolkien, uma criatura que não gostava de deixar a segurança de suas casas ou "O Condado". Fort Fumble (EUA) O Pentágono. morcego de futebol americano (EUA) usado para descrever uma pessoa ou sistema que é extraordinariamente estranho. (Por exemplo, "Você é tão fodido como um taco de futebol". Às vezes, é apresentado como "Canhoto de Futebol Esquerdo" ou "Sanduíche de Sopa". Quatro pés caem (Exército dos EUA e Corpo de Fuzileiros Navais dos EUA). Rádio 25/27. "Dando um ponto (PRC) a queda de quatro pés" é jogá-lo no chão em frustração. Quarto Ponto de Contato (Exército dos EUA) As nádegas, ou o quarto ponto do corpo para entrar em contato com o solo em Queda de Pára-quedas (PLF) (Bolas dos pés, panturrilhas, coxas, nádegas, músculos flexíveis) FRED (EUA) "Fucking Ridiculous. Economic Disaster". O apelido dado à aeronave de transporte pesado Lockheed C-5 Galaxy. O nome foi popularizado por causa do chamado "assento de US $ 500" expor em 60 minutos durante o início do campo da aeronave. Ou, (AUS) "Fucking Ridiculous. Eating Device". O problema comendo dispositivo em pacotes de racionamento de combate, um combinação entre uma pequena colher e um abridor de latas e um abridor de garrafas. Dispositivo de citação (ambos são aceitáveis). Amigo do Brometo (U. S.) Um Marinheiro geralmente não qualificado que não desempenha nenhuma função útil além de fornecer uma carga para a planta de ar condicionado. O "brometo" refere-se à planta de ar condicionado de brometo de lítio, que opera melhor sob carga. (The) Frisbee (Canadá) Um termo usado para descrever a forma da entrada IMP Cherry Baked Dessert que se assemelha a um Frisbee redondo, fino e plano. Infame. por seu gosto repugnante. Posição de flexão frontal (U. S.) Posição de flexão. alerta gelado (EUA), vigilante. Isso pode ter resultado da cultura pop, não do uso militar real do termo. O primeiro uso conhecido foi no filme de 1972, The New Centurions. salada de fruta (U. S.) A colecção colorida de fitas usadas no peito de um uniforme de gala. FTA 1. (Exército dos EUA) "Fuck the Army" - graffiti comum, também escrito como um epíteto falado. Quando o sargento perguntar sobre a nova tatuagem "FTA", lembre-se que significa "Diversão, Viagem e Aventura" ou "Melhor Treinamento Disponível".

2. (Corpo de Fuzileiros Navais dos EUA) "Falha na Adaptação", uma razão pela qual os recrutas são enviados para casa do campo de treinamento. FTAF (Força Aérea dos EUA) "Foda-se a Força Aérea" - graffiti comum, também escrito como um epíteto falado. Usado geralmente como uma forma elevada de termo depreciativo para a Força Aérea. FTN (Marinha dos EUA) "Fuck the Navy" - graffiti comum, também escrito como um epíteto falado. Geralmente usado em um jogo simples de "esconder e procurar" - FTN pode ser encontrado em locais obscuros (como dentro de máquinas) e a descoberta de que geralmente irrita pessoas de alto escalão e "dig-it". FUBAR (EUA) Abreviação de "Fucked up beyond all recognition (ou reparo)". Às vezes "FUBER" para "reparo econômico". Veja "SNAFU", abaixo. FUBIJAR (Reserva das Forças dos Fuzileiros Navais dos EUA) "Foda-se, amigo, sou apenas um reservista". FUBIS (Exército dos EUA) "Fuck You Buddy, I'm Shipping" usado na Era do Vietnã por soldados que tinham pouco tempo antes de irem para casa. FUGAZI Fodido Para Cima, Tem Uma Emboscada, Zipado Em. Gíria da Guerra do Vietnã para uma situação confusa. Fechado em refere-se a um saco de corpo. coronel de pleno pássaro (U. S.) Um coronel (O6) em oposição ao "coronel leve" que é um tenente-coronel (O5). Nomeado para a insígnia da águia. Também conhecido como "touro cheio", "pássaro cheio" ou "coronel de pássaro". Veja "coronel de luz", abaixo. touro completo (U. S.) Ver "coronel de pássaro completo" acima. termo completo do parafuso (Reino Unido) usado para descrever cabos após ser promovido de Lance Jack. Fuzzy Wuzzy (Reino Unido) Nos tempos vitorianos, um termo pejorativo para os habitantes alienígenas ou de pele escura do Império Britânico.

2. (U. S.) Qualquer braço pequeno, referindo-se a gíria de gângster. Gator (Marinha dos EUA) Encurtamento do título "Navegador". O oficial sênior encarregado da navegação a bordo de um navio da Marinha. Gator Navy (Marinha dos EUA) Significa o anfíbio. braço da superfície Marinha. GAF (EUA) Gay pra caralho. Quando os indivíduos impopulares perguntam o que é este acrónimo, dizem-lhes frequentemente que significa "Força Aérea". Alternativamente, implicando uma atitude de "dar a mínima", ou seja, um não se importa. "O que há com a atitude da GAF?" ou "Esse cara é muito GAF." Fator GAF (Canadá) Dê um fator de merda. Quando um soldado se preocupa muito ou pouco com uma tarefa, ordens, deveres ou instruções. "My GAF Factor is non-fucking-existent". Garatrooper (Canada) used to describe a Soldier who excels in garrison but is lacking where it counts in the field. This term was used by WWII U. S. Army Cartoonist Bill Mauldin "Up Front" to describe those who were "too far forward to wear ties, and too far back to get shot" However the term proved unpopular with the Paratroopers who saw it as a slur on their designation and it never gained popularity with U. S. forces. gedunk or geedunk (U. S. Navy): Commonly junk/snack food itself, or the store in which it can be acquired. Also the military service ribbon awarded to new recruits in boot camp is referred to as the "gedunk ribbon". (Unconfirmed: derived from the sound made by an old-fashioned cigarette machine when the Foosball-like metal handle was pulled out and released, i. e., the ribbon is of such little value that it was obtained from a vending machine.) get some Navy (U. S. Navy) A verb used to describe a situation where someone has some pain inflicted on them due to something associated to the Navy. (e. g., A Sailor is told that he has to stay past his duty time and do extra duty due to the whim of a higher ranking person - he is "getting some Navy"). GI (U. S.) Always pronounced as initials "gee ai", coined during WWII it reputedly stands for "government issue(d)". As a noun, GI refers to a member of a U. S. military service, as in "G. I. Joe"; originally pejorative as it implied that U. S. Soldiers were nothing but interchangeable units (Government Issue(d) Joe) that could be requisitioned like any other supplies. As an adjective, it can be applied to any item of U. S. military materiel or procedure. When used as a verb it means to put into military shape, as in "to GI the barracks". Etymology at GI. GIB (U. S.) Guy In Back, i. e., back-seater in a two-place aircraft, whose job duties vary with the aircraft (e. g. WSO "Wizzo" = Weapons Systems Officer). gig line (U. S.) An imaginary line running down the front of a uniform formed by the edges of the pants fly placket, right belt buckle edge and the shirt button placket. The significance of the "gig line" is that all parts of it be in-line for inspections. G. I. party (U. S. Army & Air Force) A term used to describe scrubbing the barracks from top to bottom. This sort of "party" is seldom, if ever, fun. Go-fasters (U. S. Marine Corps) Athletic or "tennis" shoes. go outside (UK Royal Navy and Royal Marines) To leave the service and return to civilian life. go west (WWII U. K.) die. As in migrate across the American continent in the 19th Century, when people who went West were often never seen again. goat rope/ing A Useless, futile, or foolish activity. A waste of time directed by higher authority. goat locker (U. S. Navy, U. S. Coast Guard) Room or lounge reserved for Chief Petty Officers (E-7 and above). Those who are E-6 and below would do well to steer clear unless expressly permitted inside. Also used to refer to the Chief Petty Officers assigned to one command. GOBI General Officer Bright Idea. An idea often inspired by a briefing, which is then endorsed and ordered by a general. Sometimes it is valid, often it is pointless, but it invariably creates more bureaucratic hassles than are necessary to the mission. GOFO Grasp Of the Fucking Obvious.. goldbrick, goldbricker (U. S.) A member of the military who feigns illness to avoid duty; more recently, any service member who shirks duty. Golden Shellback (U. S. Navy) A Sailor who crosses the equator at the point of intersection with the International Date Line. See Shellback. Gold side (U. S. Coast Guard) The regular U. S. Coast Guard, which wears gold insignia compared to the U. S. Coast Guard Auxiliary, which wears silver insignia. See Silver side. gone Elvis (U. S.) Missing in action. gonk (U. S. Air Force) electronics/avionics/computer devices in general, especially when performing functions of a computational nature. Also seen as "gonkulator". Can be used as a verb: to "gonkulate" means to calculate either by hand or by machine. (From a "Hogan's Heroes" episode in which Hogan convinced Klink that the "gonkulator" was a top-secret Allied device.) Good Training (U. S.) Anything that does not result in death, a reportable incident, or the relief of the commanding officer. "We had rain for three days during the field problem, but it was all good training." Gook (U. S.) A derogatory term for an Asian enemy Soldier used extensively during the Vietnam War. From the Korean guk. ("people"). Got One's 6 (U. S.) military slang for 'got one's back'. When a Soldier in a situation where a solo battle can be dangerous, even life-threatening, another would offer help to ensure survival even if the mission ends in failure. The Soldier is like a clock with the face looking at 12 o'clock and arms at 3 and 9 o'clock. gopping (British Army) Dirty, especially used of rifles in need of cleaning. gouge (U. S. Navy, U. S. Coast Guard - particularly aviation) Informal information channel; the grapevine; the straight dope; inside information. Gouge is passed on by the gouge train. goulasch cannon (U. S. Army, German Wehrmacht) Portable, self-contained field kitchen. Originally used by WWII German Soldiers, but it can also refer to the U. S. Army's Mobile Kitchen Trailer or MKT. Gore 4 (U. S. Marine Corps) Full Gortex rain suit, including hood, covering one's person. This is a play on the MOPP chemical warfare system and its numbered levels of use/protection. grand slam (U. K.) The act of defecating, urinating and throwing up while sleeping off a large "Male Bonding Session" while undergoing training. Grape 1. (U. S. Submarine Service) Delightfully easy. Examples: "This is %$# grape duty! I %$# love it!" or "That was a grape sig, you %$#." (See "sig" below)

2. (U. S. Marine Corps, Army) One's head. For example: "Put your cover [hat] on your grape."

3. (U. S. Air Force Fighter Pilots): an aircraft/pilot that is easy to shoot down.

4. (U. S. Navy): The flight deck crewmen on an aircraft carrier tasked with fuel handling (so called for their purple shirts and helmets) . Related to "skittles". Gravel Tech(nician) (Canada) Infantry, Usually referred to as such by the Navy. green eggs (U. S. Army) Powdered (dehydrated) eggs served by the Army. Green is used to indicate "Army issue" and not necessarily the actual color in this case. (pre 1995 eggs were often served mermite cans, and were actually green in color.) Green Eyed (U. K.) Excessively keen or professional Soldier. Green Slime (U. K.) Intelligence Corps. Based on color of Beret combined with the Intelligence Corps' sneaky and underhand warfare. grid squares (U. S. Army) An item new recruits are sent to find; a form of snipe hunt. A grid square is a term for one area on a map, a square created by grid lines of one kilometer. Green weenie (U. S. Marine Corps) A term used to describe one being refused a liberty. "I got fed the green weenie again. tasted like the last guys asshole!" Grinder (U. S. Navy) The outside tarmac, asphalted area or courtyard normally adjacent to a barracks which is used to perform musters, drilling, and sometimes "cycling" of recruits in boot camp. ground-pounder (U. K. and U. S.) Derogatory term for Army or Marines. Opposite of 'air-dales', above. ground sheet 1. (Canada) A rubberized tarp, used as a half-shelter.

2. (Canada) A female who sleeps around, "she's nice to lay on" grow bag (U. K. RAF) Slang for aircrew - so named due to the color of the RAF flying suits. grunt (U. S.) Originally, a derogatory term for Army or Marine infantrymen (referencing the sounds made by men carrying heavy gear). This term has become more acceptable over time, and today, most, if not all, infantrymen are proud to be "grunts," as opposed to other MOSes in the military. Also known as "Ground Pounders." Although "grunt" is not an acronym, common backronyms include: "Ground Replacement Unit, Not Trained" or "Ground Replacement, Usually Not Trained." (Canada) Government Reject Unfit for Naval Training, Usually refers to infantry/combat arms. GTFO (U. S.) Pronounced "GIT-foe". Acronym of "get the fuck out", nonspecific utilization in training/combat. GTS (U. S.A. F.) Google That Shit. Used when asked a stupid or unknown answer to a question one could learn on their own by utilizing a popular search engine. Guardian Angel (U. S.) A Soldier or Marine placed in a high position in urban warfare to provide overwatch and cover to friendly units moving below. Gucci kit (U. S., U. K. & Canada) Non-issued kit or equipment bought by the Soldier. The word "gucci" alone is also used in the Navy to mean fancy, e. g. "that's a gucci computer". Guckle (U. S. Submarine Service) Storage Space on Submarines, Similar to a large closet, larger than a puka (below). Gum Shoe, or Gummy Bear (U. S. Navy) Slang for a Sailor in the CT (Cryptology Technician) rating. The first CT school was located in a room on top of a building having a tarpaper 'deck'. The students would inevitably get pieces of tar on the bottom of their shoes. gun (U. S.) An artillery piece. This isn't slang per se but precision, as rifles and pistols are referred to as "small arms" or "sidearms" or simply "weapons." Gun is also slang for "penis"; recruits learn not to call their weapon a gun in the rhyme, This is my rifle/This is my gun/This one's for fighting/This one's for fun. gun bunny 1. (U. S.) An artilleryman - often specifically a cannon crewman. Often used as derogatory and implies simplemindedness because of simple job - "Pull string, gun goes boom"

(Royal Navy) Female camp follower of teams competing in the RN Field Gun Run. gun-plank (U. K.) An Artillery term for a junior officer, implying that they would be more Useful wedged under the wheels of the gun to prevent it sinking into the mud than in their current role. gun rock (U. S.) Artillery cannon crewman, especially used by other artillerymen (e. g. forward observers, fire direction control) . Pejorative. Gung Ho Mo Fo (U. S. Army) A Soldier who is more enthusiastic about the Army than those around him. This is a fairly recent slang term resulting from the "gangsta" influence in the U. S.. Gunny 1. (U. S.) a Marine Corps gunnery sergeant(E-7)

3. (U. S. Army) Master gunner in a Bradley Fighting Vehicle mechanized infantry company or battalion, or gunnery sergeant in a U. S. Army howitzer platoon. gyrene (U. S. Navy, U. S. Army, U. S. Air Force) Mildly derisive term for a Marine. Also "Jar Head," "Leather Neck"

Pecker Checker: (Canada) Medical Personnel; (U. S. Navy) Hospital Corpsman. U. S. Navy Hospital Corpsman are also called Pill Pusher, Dick Smith, or Chancre Mechanic. Marine Corps also uses this term for those unlucky bastards tasked with monitoring a whizz quiz.

PFCIC (U. S.) Private First Class in Charge. used in reference to PFCs who take on more authority than they have. A play off of NCOIC. PFM (U. S. Air Force, Marine Corps) Pure Fucking Magic. used to explain how something works to someone who will not grasp the technical details. Phantom Phixer (U. S. Air Force) An F-4 Phantom mechanic. Phone Colonel / Commander (U. S.) An O5 or O4 who introduce him - or herself as "Colonel or Commander" over the phone in hopes of being mistaken for a the higher rank. Pill Pusher (U. S. Navy) Hospital Corpsman. Also called Pecker Checker, Dick Smith, or Chancre Mechanic. Pilot (RN) The Navigating Officer of a ship. Pilot before Pontius. (RAF) "I was a pilot before Pontius." (i. e., Pontius Pilate) means that the pilot is very experienced. Pineapple (U. S., World War II) Slang for a hand grenade, due to the pineapple-like shape of army issue Mk. II hand grenades. (U. S., pejorative) person from Hawaii (not necessarily ethnic Polynesian). Pinger (RN) Anti-Submarine helicopter and crew. Derived from the dipping sonar. PINGERS (U. S. Air Force) Persons In Need of Graduation, Education, Recreation, and Sex. Term used for young non-prior-service Air Force personnel graduated from basic training and enrolled in technical training. See also pipeliner. Pipeliner (U. S. Air Force) A non-prior-service Air Force member enrolled in initial technical training. Pit (U. S. Marine Corps) Large Sand pits at MCRD that are used for a platoon Trashing by Drill Instructors. See Thrashing. Pitching a tent (U. S. Navy, especially Boot Camp) One who masturbates at night under his blanket. Plastic Bug (U. S. Navy) Nickname for the F/A-18 Hornet. Plat Daddy/Mama (U. S. Army) Platoon sergeant. Plebe Freshman at the United States Naval Academy or United States Military Academy (a freshman at the United States Air Force Academy is a "Doolie" or a "Smack") . PLF (U. S. Army) Parachute Landing Fall. PLUG (Canada) Private Learning Under a Gun, this Soldier is so stupid he needs a gun to his head to understand (this usage is possibly a backronym for plug, which the Oxford English Dictionary defines as an "incompetent or undistinguished person"[4], usage dating to 1848) PMCS (U. S.) Park the Mother and Call the Shop, a play on the official meaning: Preventative Maintenance Checks and Services. PNN (U. S. Army) Private News Network, the rumors that spread from the grouping of privates who banter. Po Bosun (RN) The senior petty officer medical assistant on board a ship; po is British slang for a chamber pot, the implication being that he was in charge of emptying the chamber pots in the sickbay. Pocket billiards (Singapore) Walking around with one's hands in his pockets, referring to someone beating off, as in 'Stop playing pocket billiards when I'm talking to you!' Pocket Rocket (U. S. Air Force) A ballistic missile warfare insignia. POG (U. S.) Person (or personnel) Other than Grunt. Rhymes with "rogue". Used by combat arms Soldiers to describe anyone in a support Military Occupational Specialty (MOS) . Also used by infantrymen to describe anyone other than an infantryman. Pogs The cardboard gift certificates circulated by AAFES shops in theater during Operation Iraqi Freedom and Operation Enduring Freedom. They are used to save the cost of shipping regular U. S. coinage across seas, and resemble collectable milk caps, the most popularly produced by the "POG" company POL (U. S. Army) Petroleum, Oil, Lubricants. Shorthand for gasoline, diesel, or other fuel. Pronounced by letter, "Pee-Oh-Ell". Poles in the Holes (U. S. Navy Nuclear Program) To SCRAM the nuclear reactor. Poo-tang A term used to describe "pussy" during Vietnam. Pooka (U. S. Submarine Service) Area for storage, smaller than a closet, larger than a cabinet. Small workspace separated by partitions. Pop Smoke (U. S.) Call for extraction. Alternately to leave work or complete an period of service. Pop Tart (U. S. Air Force) An Airman whose technical training school is 6 weeks or less. Popcorn Colonel An O5 (Lieutenant Colonel). Called this because the insignia is an oak leaf and looks like a kernel of popcorn. Pork chop (U. S.) Term for the 200-round drum used with an M249 Squad Automatic Weapon (SAW). Potato Masher (Allied, World War II) Slang for Nazi German hand grenades due to their distinctive shape. POV (U. S.) Privately Owned Vehicle. Pronounced, "Pee-Oh-Vee." PowerPoint Commando / PowerPoint Ranger A briefer notorious. for producing overly complex briefs in PowerPoint that are too long and use too many effects, such as animations and sounds. PRC-E6 (or E7, E8, etc.) (U. S.) A non-existent item that a new join to a unit may be sent to acquire and bring back, typically from an NCO of a particular grade (PRC is a common prefix in designations for radio or other communications equipment and is pronounced "prick". The combination of this pronunciation plus the "E-" rating makes up the joke.) Prick-6 (U. S. Army) Vietnam-era shorthand for the PRC-6 radio carried by platoons. Also applied to the "Prick-25", a backpack carried radio used by company-sized units. Profile a flat piece of scenery or stage property that has been cut so as to form an outline or silhouette of an object. Promotion Pads (Canada) Initial issued knee pads that are never worn under any circumstance. Unless you spend your career on your knees sucking the chain-of-command's dick. Provisional Wing of Tesco's (U. K.) Royal Logistics Corps nickname combining Provisional IRA with a famous. supermarket in the U. K.. PT Rat (U. S.) A servicemember who spends a large amount of time in individual PT. Puddle Pirate (U. S.) A member of the United States U. S. Coast Guard, so-called because of the mistaken belief that they never sail into deep water.

(Canada) A sea cadet or naval reservist.

Puff the Magic Dragon or Puff (U. S., Vietnam War) An AC-47 air-to-ground attack aircraft. Puking Chicken (see Belching Buzzard) a derogatory reference to the 101st Airborne's Eagle crest. Pull chocks (U. S. Air Force) to leave a bar, for example to abandon a crappy party. (U. S. Navy) to leave. Refers to removing the wheel chocks when an aircraft is ready to taxi away. Punch out (U. S. Air Force) to eject from an aircraft. Has acquired the meaning to separate from the service, or resign from the Academy. Purple Suiter (U. S.) A person who is serving in an all-service (Army, Navy and Air Force) position. An example would be a Naval officer who manages fuel for all military units in an area or major command. Purple Trade ( Canada) A support trade, such as an admin clerk, driver, medical officer, etc. Support trades are shared by all three services in the Canadian Forces. Puzzle Palace (U. S.) The National Security Agency headquarters at Fort Meade, Maryland. This comes originally from the book titled The Puzzle Palace written by James Bamford about the National Security Agency. Pump and Dump (All services) . To use the bathroom. PX Ranger (U. S. Army) . A Soldier who purchases and wears badges, tabs, and insignia without having graduated from the appropriate corresponding schools, usually without the approval of the chain of command.

2. (U. S. Air Force Academy) "Rag Tag Bastards"; any graduating class which has red as its class color. Each class is either a gold, silver, blue, or red class, when the senior class graduates, their class color is passed to the incoming class. run money (U. S.) 19th Century Navy term for a reward paid for the return of a deserter. Rupert (U. K.) Slang for Officer. Not always derogatory. Ruptured Duck (U. S.) The Honorable Service award given to U. S. service members who were discharged under honorable conditions during or just after World War II. Also used to describe the recipient; refers to the awkward appearance of the spread-wing eagle of the emblem. RTU (U. K. and Canada) "Returned To Unit"—sent back to the home regiment or base from a specialized training establishment as the result of failure or disciplinary action. "After the mess had been cleared up there was only one outcome … RTU!"

(U. K.) Soldier Awaiting Training - Soldier who is not currently posted awaiting training. SBO (Singapore) Skeletal Battle Order; officially refers to an infantryman's basic combat equipment, without field pack or field supplies. In slang usage, refers specifically to the old-style combat webbing and attached pouches, as opposed to the newer MOLLE-compatible load-bearing vest which is currently replacing it. scablifter (U. K. RN) Medical branch rating. scaly, or scaly back (U. K.) A signaler. It is suggested that this term comes from the figure of Mercury on their cap badges, who appears to have fish-like scales on his back. An alternative version is that it is related to the fact that old radios used to leak battery acid on the back of the man carrying it - hence they had a scaly back. scoff (U. K.) Food. scope dope (U. S.) Radar or sonar operator who spends his/her days staring at a screen. scrambled eggs (U. S.) The decorations on the brim of a field-grade officer's dress uniform cap.

(U. K.) The gold oak leaves on senior officers' cap peaks. scran (U. K. RN/RM) Food. scraper (RAF) Thin band in the centre of a squadron leader's rank badge. screen-saver face (Singapore) To be dreaming when one is supposed to be alert. Also 'Stone' screw the pooch (U. S. Military and civilian) To badly err or mess up. (Canada) To shirk one's duties. Used as an euphemism for dog fucking (see Dog Fuck.) screwed, blued and tattooed (U. S. Navy) Used to describe common liberty activities in some ports. Getting "Screwed, blued and tattooed" can imply a fun liberty, one where someone got in trouble for various. reasons, or one where the Sailors simply saw everything there was to see in a given port. scrounge (U. S. Navy) A Sailor who does not keep his body clean. (U. S. Army & Air Force) A very important member of a unit, a Soldier who can obtain any materials and/or equipment, usually by other than normal channels. scuttlebutt (U. S. Navy) Rumor or gossip, deriving from the nautical term for the cask used to serve water (or, later, a water fountain). See scuttlebutt. seabag (U. S. Marine Corps and U. S. Navy) Issue green canvas or cordura bag used to transport personal effects. seabag drag (U. S. Marine Corps and U. S. Navy) Routine of travel referring to the waiting period often encountered when transferring flights or waiting assignment to flight manifest. sea daddy (U. S./U. K. Navy) A senior enlisted man who acts as a guide to a junior (usually a "newbie"), showing him the ropes and guiding his early career. The civilian police equivalent is called a "rabbi". sea donkey Pejorative. A Derogatory term for a female Sailor. seagull Colonel A colonel who swoops in, makes a mess on (craps on) everything, and swoops out again. sea hag A Derogatory term for a female Sailor. sea pup (U. S. Navy) The junior enlisted who is guided by the Sea Daddy. sea lawyer (U. S. Navy, U. S. Coast Guard, RN) A Sailor, probably too smart for his own good, who thinks he knows all of the regulations and quotes them to get out of either work or trouble. Other U. S. and U. K. military equivalent is "Barrack Room Lawyer" (U. K.), and "Barracks Lawyer" or, more crudely, "Shithouse Lawyer" (U. S.). Sec(k) Daddy/Mama (U. S.) Section sergeant. seen (Canada Infantry, Canada Armour) Used as a confirmation for a visual reference; used to confirm understanding of orders, similar usage as Hooah self-loading cargo Passengers boarding a transport aircraft. semi-skimmed (U. K. Royal Marines) Referring to their Green Berets, due to green lidded semi-skimmed milk cartons and bottles available in the U. K.. semper fu (U. S. Marine Corps) Refers to the Marine Corps Martial Arts Program, the hand-to-hand combat system used by the Marines, which has different levels of belts (tan, grey, green, brown, black) for different levels. Combination of "Semper Fi" and "kung-fu". Senior Airman of the Air Force (U. S. Air Force) An overzealous. Senior Airman. Sergeant Rock (U. S.) Based on the name of a comic book, is a term for a highly competent and heroic combat Soldier. Serve And Fuckoff (Singapore) Backronym for the Singapore Armed Forces, generally used by conscript soldiers whose primary concern is to finish their obligation and get back to civilian life. Not to be used within earshot of senior NCOs or officers. severn nursery (U. S.) refers to the United States Naval Academy located on the banks of the Severn River in Maryland. A pejorative used by Navy enlisted personnel. shack (U. S. Air Force) A direct hit against a ground target, often used as praise. shack rat (Canada) A term used to describe promiscuous. female civilians who come to military barracks to sleep with random Soldiers. shacks (Canada) Barracks. shamurai (U. S.) A master of shamming. sham shield (U. S. Army) A term used for the Army's Specialist rank. Meaning that a Specialist can now get privates to do their work. Also, because a specialist is not accountable for anything, but still has authority. Also known as a chicken on a platter, because of the eagle in the middle of the shield. Sharkfin (U. S. Air Force) used at Beale AFB, including accompanying deployed locations and S. Korea, referring to a particular person that cannot perform his duties adequately, namely in aircraft maintenance. shavetail (U. S.) (Also spelled "shave-tail") A derogatory term for a Second Lieutenant, or for a female servicemember. Compare with "Split Tail". Sheet Metal (U. S. Army) Term used to describe a 15G, or Aircraft Structural Repairer. Sheep (Canada) A very condescending and uncomplimentary term for civilians (Civvies), especially those who do not agree with the military perspective about something. shellback (All English-speaking navies, originally U. K.) A Sailor who has crossed the Equator during a tour. There is a "Crossing the Line" ceremony where all Shellbacks kindly harass the new initiates - called tadpoles or pollywogs - to initiate them into the position of Shellback. The senior Shellback aboard presides as King Neptune's personal representative. shiney-arse (U. K.) Regimental Admin Officers and those in similar desk-bound posts. The green polyester "barrack trousers" formerly worn by Army office workers did indeed acquire a certain shine to the seat after prolonged contact with an office chair. Shiny guys/Shiny (U. S. Army) Officers. Also see Brass. shipwreck tech Mildly derogative term for the United States Naval Academy at Annapolis. Common among graduates of West Point. Shirt (U. S. Air Force) Respectful term to address an Air Force First Sergeant. For example, "Hey Shirt, got a minute?" Shitbird (U. S. Marine Corps)Derogatory name for a Marine that is not squared away in appearance or discipline. shit hot (U. S.) Outstanding, hardcore, tactically proficient. For example, "Second platoon was looking shit hot today in the shoot house." Shithook (U. S.) CH-47 'Chinook' cargo helicopter. shitmate (U. S. Marine Corps and U. S. Navy) Derogative term Used often by Marines when referring to Navy Sailors. shit pump (Canada) Often used to refer to an incompetent soldier. shit on a shingle (sometimes abbreviated S. O.S.) (U. S.) Chipped beef on toast. shit patrol (U. S. Army) Term used to describe being selected for latrine duty in the field or the practice of burning the buckets of shit, with diesel fuel, collected from the field latrines. To be selected means you have "shit patrol". shit pump or pump (Canada) A person who displays a poor attitude, meets the bare minimum standard, an overall bad Soldier. "Bloggins is a real shit pump". shoe (U. S. Navy) Short for "black shoe", a surface warfare officer. Pejorative. Compare "brown shoe". shoe clerk (U. S. Air Force) Someone who works a desk job in the military, has no idea what military operations really are, is convinced that his relatively meaningless, bureaucratic job is the most important function in the military, and causes the people doing the real mission to waste time and resources on his petty, trivial tasks. See queep. shooting pool with the Captain (U. S.) A U. S. Navy term for captain's mast (non-judicial punishment presided by the unit commanding officer) . This refers to the green felt cloth draped over the commanding officer's table during mast. The green cloth is a tradition dating to the Royal Navy in the 15th century that is symbolic for the Captain's mastery of the seas. shovel patrol (U. K.) Leaving your Unit area with a spade in order to defecate. short or short-timer (U. S.) Term coined during Vietnam era to describe personnel approaching the end of their tour and/or term of service. Usually announced in an obnoxious and rowdy manner — examples: "I'm so short I had to parachute out of bed this morning and accidentally landed in my boot!", "I'm so short I could sit on a piece of paper and dangle my legs over the edge!" Modified into "short-timer" in the modern military era. Short Bus (U. S.) The MRAP (Mine Resistant Ambush Protectant) vehicle, because of its appearance. shower-shoe (U. S.) Pair of rubber sandals (a. k.a. "flip-flops") issued to recruits to prevent infections from the use of community or shared showers. See also Jesus. sapatos. Also used as a slightly pejorative term for junior servicemember. Comes from the perception that new personnel still wear their footwear in the shower, as mandated in boot camp or basic training. shower tech (U. S. Navy) Pejorative term for Sonar Technicians who are perceived to never get dirty from their work, which mostly involves sitting in front of computer screens and seem to have a lot of off-watch time as compared to other enlisted rates, hence the ability to take a shower whenever. Shut up and Color Often told to someone of equal or lower rank, telling them to quit complaining. See also 'Suck Thumb'. sick, lame and lazy The group of military personnel on 'sick call' or excused from duty for injury or illness -- a half-joking reference to malingering. sickbay commando (U. S.) A servicemember found often in sickbay (a hospital or infirmary) , usually in lieu of difficult work or PT. sick-call ranger (U. S. Army) someone who is "hardcore" about malingering. Also, the more-recent 'sick-call ninja', 'master of malingering', 'clinic ninja' or 'profile ranger'. Sierra Hotel 1. Shit's Hot - Refers to actions that are particularly awesome or high-speed. Used as a compliment when someone is doing well. 2. The NATO phonetic alphabet abbreviation for Shit Hot. It is considered high praise and is the pilot's favorite and all-purpose expression of approval. For example, "That Sierra Hotel pilot just shot down six MiGs and an ICBM!" This is the "polite" military way to say that something is very impressive, and has come into use outside the military. Sierra Tango Foxtrot Uniform Shut The Fuck Up (NATO phonetic alphabet). sig (U. S. Navy) A signature on a qualification card (a card that shows you are ready to stand a particular watch) . There are many, many "qual cards" in the Navy that must be completed before being allowed to take an exam or be interviewed by a board to be qualified to stand a particular watch or role. Some qual cards and their individual sigs can be easy or extremely difficult to obtain. In some cases a junior Sailor going for a sig may not only have to prove his/her knowledge to a senior crewmember, but also do something extra for that signature--such as performing a minor menial task or bringing a small bribe like a can of soda. Silver bullet Rectal thermometer used on boots who over heat during boot camp. Also known as a magic bullet. Silver side (U. S. Coast Guard) . The U. S. Coast Guard Auxiliary, which wears silver insignia of office (since Auxiliarists have no military rank). See gold side. silly buggers (Canada) A sarcastic reference to "playing army" when an individual must act upon the fictional events taking place in a field exercise. ". Since Jesus was a Corporal" (U. S. Army and U. S. Marine Corps) For a very long time. por exemplo. "I haven't been home since Jesus. was a Corporal." Sith Gear (U. S. Marine Corps) Organizational equipment issued to a Marine from his unit and kept by the Marine as personal gear, but is expected to be returned in serviceable condition upon that Marine's detachment from the unit. Usually refers to load-bearing equipment, rucksacks, body armor, helmets and other field gear. From the warrior Sith lords in the "Star Wars" franchise. six, six and a kick (U. S.) Six months confinement, six months loss of pay, reduction in grade to E-1, Bad Conduct Discharge; formerly the most severe penalty that could be awarded by a special court martial. A special court martial can now adjudge 12 months confinement. Skillfully Acquire (Canada) To steal, without the negative connotation. Used by seniors to circumvent the regulations on giving unlawful orders, i. e., stealing. skimmer (U. S. Navy, Submarines) Term referring to any and all surface vessel. See "Target" below. skimmer puke (English speaking Navies) Submariner's pejorative term for Sailors on surface warships, especially destroyers and frigates. The ships are often referred simply as "targets", even if speaking of one's own Navy. skittle (U. S. Navy) A term used by ship's crew for an Airman on an aircraft carrying vessel referring to the multi-colored candy "Skittles". Aircraft handling crew (and some ship's crew) wear colored pull-over shirts depending on their job which stands out to the majority of a ship's crewmen in plain blue uniforms. Sleaford Technical College, Sleaford Tech (RAF) The Royal Air Force College Cranwell slick-sleeve (U. S. Air Force) Lowest enlisted grade (E-1), so named because no stripe is awarded until the grade of E-2 (Airman) is achieved. slider (U. S. Navy) Chow hall cheeseburger. slop bucket (U. S. Navy) Used by Navy air traffic controllers to refer to a metal or plastic bucket that excess coffee and coffee grounds are disposed into. Each day the Slop Bucket PO (Petty Officer) - normally a non-petty officer rank, E1-E3 - is charged with disposing of the contents and cleaning the bucket for the following day. Slop Bucket PO is not a legitimate collateral duty, but still a common duty given to junior air traffic controllers prior to receiving any controller qualifications. slope/slopehead (U. S.) A derogatory term for an Asian enemy Soldier used extensively in Vietnam. slow-mover badge Purple Heart Award SLUF (U. S. Air Force and U. S. Navy) Short Little Ugly Fucker (Clean Short Little Ugly Fellow) Description and term of affection for the A-7 Corsair II attack aircraft. sluggie (Ireland) Term referring to reserve Sailor. SMACK An acronym short for "Soldier Minus. Ability, Coordination, and Knowledge", refers to a fourth-class cadet (freshman) at the United States Air Force Academy (also called a "doolie"). Smash Pissers (Canada) To have sex with. Ex "Man, I'd smash pissers with her any day." . SMB (ex-Yugoslavia) "sivo maslinasta boja" (grayish olive green color); the typical green color of army uniforms in ex-Yugoslavia. smell your own musk (U. S.) General term for a person acting more important than they are. Like they are getting high from smelling themselves. Common among E-4 (SPC) in leadership positions. Use started in Afghanistan. Usage: "He was talking back to me like he was smelling his own musk." smoke (verb) (U. S. Army) Term to describe punishment of minor offenses by means of excessive physical training. Usage: "The drill instructor smoked me for talking back." See U. S. Marine Corps term Thrashed Smokey Bear (U. S.) General term for a Drill Instructors' (Marine Corps), Drill Sergeants' (Army), Military Training Instructors' (Air Force) or Company Commanders' (U. S. Coast Guard) wide-brimmed hat. Properly called a campaign hat and formerly standard uniform issue in the Army and Marine Corps (per-WWII). Also called "round brown hat". SNAFU (U. S.) Acronym for "Situation Normal, All Fucked Up"; dating probably before World War II, Oxford English Dictionary defines it as "an expression conveying the common Soldier's laconic acceptance of the disorder of war and the ineptitude of his superiors" [5]. It began to enter the everyday American lexicon shortly after the war. It also spawned other acronyms denoting increasing states of "fucked up":

'FUMTU': Fucked Up More Than Usual.

'TARFU': Things Are Really Fucked Up.

'FUBB': Fucked Up Beyond Belief.

'FUBAR': Fucked Up Beyond All Recognition (or Repair)

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Although many organizations struggle to find money to differentiate base pay increases or bonuses for high performers, other companies with similar budgets and performance are able to distinguish between high and average performers in compensation. They do so by “carving out” a portion of the pay increase or variable pay/bonus budget for employees who are designated as high performers. Using this approach can help organizations live up to their aspirations to truly pay for performance and avoid creating an expensive and ineffective entitlement mindset about pay.

What Are Compensation Carve-Outs?

The carve-out approach reserves a portion of the compensation increase budget for the highest performing employees. A number of organizations have implemented programs under which, for example, they reserve 0.5 percent of their 3 percent overall merit pay budget for their top performing employees. They then divide that money among the top performers in addition to the 2.5 percent that is allocated to all employees who are average or high performers.

Although the number of employees who are deemed high performers will have a significant impact on the extra amount they get, even with a modest carve-out and a reasonable number of high performers, the carve-out approach can provide them with noticeably higher rewards.

The carve-out approach works because it changes the dynamics at several points in the pay determination process: budgeting, communicating and setting expectations, evaluating performance and delivering differentiated rewards.

Although senior leaders at most organizations want managers to differentiate pay raises and bonuses among low-, average - and high-performing employees, the manner in which the budget for pay increases is set and communicated often sabotages this goal. If the merit or base pay increase budget is set at and communicated as 3 percent, most employees will expect to get at least that much. Such expectations are impossible to realize unless the number of low performers (who get no raise) is the same as the number of high performers (who get more than 3 percent), which rarely happens.

Moreover, once an expectation has been set, managers will try to disappoint as few employees as possible, which usually results in everyone receiving essentially the same increase.

The same budgeting principle holds for bonus pools. Some organizations set a target bonus for the year and then express the actual bonus or incentive as a “percent of target” (i. e., 110 percent of target). Once that number is communicated, it creates an expectation among all employees that managers find difficult to meet.

In organizations that use the carve-out approach, a portion of the bonus pool budget is set aside for high performers. For example, if the overall bonus is 110 percent of target and the organization wants to give high performers more than that, the carve-out might be 10 percent. While average performers would receive approximately 100 percent of target, high performers would receive more.

Determining how much to carve out is an important leadership decision. Organizations tell us it should be based on how difficult it is for employees to meet their goals and the percentage of the workforce they expect to designate as high performers.

An organization’s culture often dictates the appropriate level of differentiation. In some organizations, the norm is to have a very small percentage of employees defined as high performers because of very difficult goals or high performance standards. Only 5 to 10 percent of employees might be rated as high performers. These organizations can use a smaller carve-out than organizations where 20 to 30 percent of employees are rated high performers. If more than 30 percent of employees are rated high performers, even a relatively large carve-out will yield only modest pay differentiation.

The table below illustrates how the percentage of employees designated as high performers might affect the percent increase they receive. It assumes an overall 3 percent budget for pay increases with a 0.5 percent carve-out for high performers. For example, an organization in which 40 percent of the employees are designated as high performers would be able to give them a 3.88 percent average increase while an organization in which only 15 percent of the employees are designated as high performers would be able to give them an average increase of 6.27 percent.;

Although an organization can estimate the size of the carve-out in its original budget for the year, it may increase or decrease its size, just as it may increase or decrease the merit or bonus pool, before it makes awards.

Communicating and Setting Expectations.

Organizations say that how they communicate the size of its merit or incentive budget is an important component of the carve-out approach. While many organizations do not announce this information formally, often it is communicated to employees informally. If this is the case, it is best to divide the budget into two parts:

What employees will get on average. The portion reserved for high performers.

Organizations have found, however, that if they make a formal communication about the salary increase or bonus budget, it is best to announce what employees can expect to get on average. This will set the appropriate expectation among the majority of employees and increase the CHANCE that high performers will feel recognized properly if they receive more than average.

Sibson has been asked if this approach to communicating what employees will get on average, rather than the entire budget, is candid. Its response is that setting realistic expectations is the most straightforward way to communicate with employees.

Experience has shown that another aspect of being honest with employees is to communicate clearly that budgeting a certain amount for the year for compensation increases, bonuses and promotions does not mean that it all will be spent. In the past, managers in many organizations tried to spend all the money budgeted, or more. In recent years, however, some organizations have realized that compensation costs should be managed just like other budget items. They spend only what can be justified by performance and supported by business results. Most organizations still need to work on communicating this point.

Evaluating Performance.

Organizations that use the carve-out approach have discovered that it can be used with any performance management program and with any type of goal setting, rating scale and performance feedback method. It tends to reduce the GAMING of performance ratings that can occur when managers try to get a desired level of compensation for their employees. For example, organizations have found that managers who know that a specific percentage of the pay increase budget is set aside for high performers will be less likely to inflate the ratings to try to get more for their staff as a whole.

Although carve-outs can be used with any type of performance rating scale, organizations that use micro differences—ratings with fractional numbers (for example, 3.6, 3.7 and 3.8)—say the program becomes difficult to administer. Some have told us that if they do use micro differences, they should be clustered together for rewards purposes. For example, 3.6 to 4.4 could be a cluster on a 5-point scale. If micro differences are not clustered, the organization might be inclined to calculate merit increases in micro increments (i. e., 2.8 percent and 2.9 percent) with differences that are so slight that they imply a false precision without providing meaningful differentiation. In this situation, we recommend using whole number ratings before applying the carve-out concept and determining increases or variable payouts.

Delivering Differentiated Rewards.

Some organizations create worksheets for managers to make recommendations about base pay increases and bonuses. Others collect the performance ratings and calculate centrally what the appropriate rewards should be. If the worksheet approach is used, there is usually a guideline matrix that accompanies the worksheet or is imbedded into it to help managers differentiate pay but stay within the overall budget.

One perceived criticism of the carve-out approach is that as the number of high performers increases, each one receives less money. This is, however, true with or without carve-outs. We have seen organizations where as many as 50 percent of the employees are rated as high performers, and unless there is an unlimited pay increase or variable pay/bonus budget, a high number of high performers will drive down the amount each one can get. The exception is in commission-based plans that are tied directly to revenue, such as those for sales people. For most other types of employees, however, there is usually a limited budget or at least a cap on the amount that can be spent, even in the best year.

In one high-performing organization, a manager said that “only 5 to 10 percent of our employees are rated as high performers, so there is no dispute about who they are and about them giving more.” In organizations where 30 to 40 percent of employees are rated high performers, however, there always seem to be even more people who can meet the standard. The solution is to decide in advance how much an organization wants to pay for performance and what the definition of high performance is.

This shared standard and definition will be critical at the moment of truth, when a manager gives an employee his or her performance rating and reward. Unfortunately, this part of the process is not easy for most managers, who tend to say things like “if it were up to me, I would give you more.”

By helping employees set more realistic expectations, the carve-out approach can help managers be more comfortable communicating accurate messages. The message for the majority of employees will be “your performance was good, and you are getting the target rewards.” For the smaller group of high performers the message will be “your performance was outstanding, and your rewards are above target.” The carve-out approach can help managers deliver both of these messages with confidence.

Conclusão.

For organizations that are serious about paying for performance, the carve-out approach can be a viable way to overcome some of the perceived barriers that can result from limited compensation budgets and unrealistic employee expectations. However, the steps of budgeting, communicating, setting expectations, evaluating performance and delivering differentiated rewards takes work and commitment from the organization and its managers and leaders.

Jim Kochanski is a senior vice president in the Raleigh office of Sibson Consulting. As the leader of Sibson’s Performance and Rewards Practice, he develops approaches and methods to help organizations improve performance, upgrade talent and connect performance and rewards.

Robin Kegerise is a consultant in the Raleigh office of Sibson Consulting. She specializes in developing compensation strategies and structures for executives and non-executives.

This article is adapted and reposted with permission from Sibson Consulting, a division of Segal.

Study: Pay for Performance Pays Off.

Over 90 percent of U. S. organizations say they are tying salary increases and annual bonuses to performance measures, up from 78 percent in 2009, according to a 2011 study by the Institute for Corporate Productivity (i4cp), a research and advisory organization. Despite these high numbers, the study shows that many companies aren’t executing their pay-for-performance strategy successfully.

The study report, Tying Pay to Performance (available online only to i4cp members), revealed that more than three-quarters of high-performance organizations tie pay to performance to at least a moderate extent, while less than two-thirds of lower-performers do the same.

“The existence of a pay-for-performance strategy alone is not a differentiator between high - and low-performing organizations—most organizations, regardless of market performance, reported that they are using some sort of pay-for-performance strategy,” said David Wentworth, a i4cp senior analyst and author of the report. “Rather, it is the approach taken in executing this strategy that separates the high-performance organizations from the rest of the pack.”

Strategy Drivers Matter.

One clear differentiator is what drives the strategy internally. Despite the weak economy and curtailed compensation budgets, just 6 percent of survey respondents identified the compensation budget as the primary driver of the pay-for-performance strategy. Budget constraints are third on the list for low-performers but not even in the top five for high-performers.

So high-performers are driven by something else—and that “something else” begins with a desire to reward and retain top performers and then to derive secondary benefits from that strategy, such as enhanced competitiveness and superior innovation.

The study found that nearly half of high-performing organizations indicated that recognizing and rewarding top performers was the main driver of their pay-for-performance strategy, making it No. 1 on the list of primary drivers. In second place was a much narrower objective—increasing the likelihood of achieving corporate goals.

Lower-performing organizations were not as sure about the drivers behind their strategy. The No. 1 driver among this group was achieving corporate goals, chosen by nearly one-third, while recognizing and rewarding top performers was cited second with 30 percent.

While meeting corporate goals and improving productivity are important short-term objectives related to incentive-based pay, the study suggests that high-performing companies understand that the broader aim is to achieve and sustain long-term competitive advantage by motivating and rewarding their best people.

Pay for Performance: Make It More than a Catchphrase.

“Pay for performance is a concept embraced by many but executed poorly by most,” said Jim Kochansky, a senior vice president at Sibson Consulting, speaking at the 2011 WorldatWork Total Rewards Conference in San Diego.

The 2008-09 recession and sluggish economic growth in its aftermath have caused employers to rethink their approaches to pay. One result: a renewed emphasis on rewarding top performers even if overall pay raise budgets are smaller. According to Myrna Hellerman, senior vice president at Sibson Consulting, much can be learned from best-practice companies where base pay increases must be earned, based on demonstrated individual achievement. Pay raises “are not an entitlement; the entitlement era is over,” she declared.

Other characteristics of the new pay mindset include:

If there is no base pay increase budget, some high achievers might still get increases. If there is a base pay increase budget, some will get nothing while significant amounts will be given to the highest achievers.

Companies are thinking more creatively about incentive compensation. Instead of annual plans, payouts might be earned but delayed until a company returns to profitability, Kochansky noted.

In addition, companies are carving out a portion of their merit budgets to be set aside for high performers. “If you have a 3 percent budget for increases, employees are going to expect to receive a 3 percent raise,” he pointed out. But if the company instead carves out 0.5 percent of the budget for high performers and communicates that the general budget for pay increases is 2.5 percent, then the expectation among average workers will be for a 2.5 percent raise. “Carve-outs should be done early in the budget process” so money is set aside and kept distinct, Kochansky recommended.

Welcome Low Performer Turnover.

Along similar lines, Ken Abosch, compensation practice leader at Aon Hewitt, noted that high performers are attracted to companies that are committed to pay for performance, whereas low performers will self-select out of these organizations. He cited some of the main challenges of implementing effective pay for performance as:

Insufficient funding. Faulty goal setting, with no clear definition of performance. Unrealistic employee reward expectations. Poor modeling by executives. The mindset that “everyone here is a high performer or they wouldn’t be here.”

It’s human nature not to want to tell employees that their pay will reflect that their performance is below par, Abosch noted.

Another hurdle: managers’ concerns about the turnover costs of replacing employees who leave because they were disappointed in their raise. “Studies have shown that below-average performers contributed less than 10 percent of the value of average performers to an organization,” Abosch stated, “and above-average performers contribute almost twice the value of average performers to an organization. You can afford to replace below-average performers,” and to do so repeatedly if the end result is to bring onboard additional high performers.

Marilu Malague, a senior compensation consultant at Aon Hewitt, advised using targeting budget increases as investments to drive average performers toward higher performance.

While much of the focus of pay for performance now is on variable pay (i. e., short-term incentive bonus payments and long-term incentive equity awards), base salary remains the largest reward component, Abosch said, and “employees value salary increases the most.” While recognizing that cost of base salary increases compounds year after year—which dissuades some employers from offering merit raises—the value of pay raises as a motivator that drives behavior can’t be dismissed, Abosch advised.

When variable pay is used to reward top performers, “the line of sight between performance and reward must be made clear,” Malague added, or bonuses will fail to motivate high performance, or, worse, will be seen as a reward based on favoritism.

Equitable Treatment, Not Equal Treatment.

‘When an employee’s extra efforts are not reflected in rewards and recognition, it erodes performance and commitment to the organization, said Tom McMullen, reward practice leader at Hay Group, a pay consultancy. At the same time, managers often confront a general notion of fairness among workers that goes back to childhood, which he summed up as “If he gets that, then I should get that, too.”

But treating everyone “equally,” despite their varying contributions to the organization, is not always fair. So managers can find themselves in a bind. “Don’t confuse equitable treatment with equal treatment. A one-size-fits-all approach won’t work,” said Mark Royal, reward practice leader at Hay Group.

“There is a strong possibility for sour grapes if there is a lack of confidence in the process of allocating rewards. As rewards professionals, we impact perceptions of fairness,” McMullen added.

Lack of consistency is often a driver for perceptions that the process in unfair. For instance, reward fairness is often delegated—or abdicated—to line managers to address. As an example: “Over 90 percent of organizations have no policies on making employees a counter-offer to keep them from jumping ship. They leave it to line managers,” McMullen reported, based on Hay Group research.

Important criteria for impacting reward fairness include establishing a fair design for the compensation and performance assessment processes, making these transparent and communicating effectively how the system works. “Have senior leaders and line managers communicate the message,” McMullen advised. “Don’t just rely on HR. Ask for help from marketing and public relations in creating branded communications about rewards that can be distilled down to core messages showing that the organization rewards employees relative to their contributions.” Consider using social media and short video presentations to get the message across.

“Few rewards programs explicitly address how fairness and equity are defined and managed, Royal said. “Most reward strategies/philosophies are not sufficiently robust and need to be made more explicit.”

“The best reward program, if poorly implemented, will yield less than strong results,” concluded McMullen. “If the reward program is not clearly explained, employee confidence in fairness and execution is likely to remain low.”

Reward Strategies Should Target Key Talent.

As the economy recovers, organizations that fail to revise their pay structures will see key talent walk out the door, according to presenters at the 2012 WorldatWork Total Rewards Conference that was held in Orlando May 21-23, 2012.

“With an increasing number of Americans leaving their jobs or considering doing so, organizations need to revisit their reward strategies to support the retention of key talent”—not the highest-level executives but those workers who consistently provide the most value to the organization, said Dow Scott, professor of HR & Employee Relations at Loyola University in Chicago.

Scott partnered with pay consultancy Hay Group in 2011 to study reward strategies that support key talent retention. Surveys conducted by Hay Group among its clients and members of WorldatWork, an association of HR/total rewards professions at mostly large North American companies, revealed that 20 percent of employees are expected to quit their jobs in the next two years. “Despite high unemployment, a number of baby boomers want one more fresh start before retiring,” Scott noted. The consequences may be twofold: subsequent generations often lack the needed experience and skills to take over.

Key talent is always in demand and thus most likely to find that outside opportunities are available. “It’s getting easier for key talent to leave,” Scott added. With the rise of social media such as LinkedIn, “everyone is always looking for a job. The days when a company wouldn’t publish an employee directory for fear of attracting headhunters are long gone.” Moreover, “key employees are sensitive to the contributions they make in comparison to their peers,” Scott noted.

“It’s getting easier for key talent to leave.”

Replacing employees is estimated to cost on average from 0.5 times to 2 times salary, but key employees can be much more expensive to find, Scott said. So it’s in the interest of organizations to retain key workers with special reward packages and career development opportunities.

Understanding Key Talent.

Organizations should clarify their rewards strategy for key talent, determining the degree of variation between key talent and others, McMullen advised. This should start with more aggressive base salary increases (including off-cycle pay raises, where appropriate), and include increased incentive and bonus opportunities that reward high performance.

“Differentials should be obvious across all cash reward elements over multiyear periods, throughout the length of the employee’s career,” McMullen recommended. In addition, nonfinancial rewards, such as mentoring opportunities, should target key talent.

Another important element is an effective communications strategy that lets employees know when they are viewed as key talent, taking into account the risk of alienating those who are not so identified — which ultimately might not be unhealthy for the organization, McMullen added.

“Involve key talent and senior management in developing key talent programs,” he suggested, and learn what drives key talent to stay or leave. To determine the program’s effectiveness, measure the growth of key employees in the organization and their retention rate.

• Opportunity to EARN MORE elsewhere (cited by 77 percent of respondents).

• Lack of promotion opportunities (67 percent).

• Pay levels perceived as unfair vs. outside opportunities (58 percent).

• Dissatisfaction with job or work responsibilities (56 percent).

• Pay level perceived as unfair vs. employee’s performance/contribution (53 percent).

• Workloads too heavy (52 percent).

• Work/life balance issues (50 percent).

Methods most often used to retain key talent include:

• Identify key employees who are essential to the business (85 percent).

• Hold discussion with key employees about future opportunities (80 percent).

• Pay employees above market level (75 percent).

Only 14 percent of surveyed HR professionals said that their organizations had a counter-offer policy, and only 4 percent had a documented policy, according to McMullen. Accordingly, “many find themselves scrambling at the 11th hour, when informed that an employee has received an outside offer,” ele disse. To avoid losing them, “you need to re-recruit that person, and the typical window to present a counter-offer is 48 hours.”

To prepare for these situations, “management guidance is needed on who is eligible to receive a counter-offer,” McMullen said. A counter-offer strategy should clarify:

The types of people/jobs eligible for counter-offers. The role of HR, line managers and senior management in determining the counter-offer.

In addition to enhanced pay, including short-term gestures such as an immediate bonus, it’s important to discuss the employee’s underlying needs and concerns. “If you don’t make good on those over the long term, you risk losing that person,” he noted.

Another point to keep in mind when developing a counter-offer policy: Not everyone who tenders their resignation and indicates an interest in a counter-offer should receive one. “Some employees are key talent only in their own minds, a view that may not be shared by the organization,” McMullen noted.

Tie Pay to Value, Not Market Data, Experts Advise.

PHILADELPHIA—”Organizations that pay for performance are more likely to attract those interested in performing,” said Jay Schuster, a partner at consultancy Schuster-Zingheim & Associates, speaking at the 2013 WorldatWork Total Rewards conference, held April 29-May 1.

The rewards package is “a powerful communications tool that defines the kinds of people who will want to join the organization,” he explained. “You can’t change the corporate culture without changing rewards.”

CEOs are looking for their total-rewards programs to support the achievement of business goals, Schuster noted, citing his firm’s research with 21 midsize U. S. companies across a range of industries, using structured phone interviews with CEOs and senior line executives.

“HR’s priority of reflecting competitive practice and ‘best’ practice in their rewards programs does not make it onto the CEOs’ list of priorities,” ele disse. HR professionals “keep buying solutions that import the value systems of someone else.” As a result, “we price jobs based on how some other people have valued their positions,” instead of customizing compensation “to reward the people who produce the most value for our organizations.”

CEOs told Schuster that the following rewards practices don’t work:

Frequently changing the program and using numerous purchased solutions, which create confusion. Change for change’s sake by each new HR person.

Improvements CEOs would like to see include:

Using business metrics to measure how employees influence return on INVESTMENT (ROI). Tying incentives to those outcomes and differentiating pay based on employees’ desempenho. Helping top performers catch up in compensation. At public companies, using stock grants to give employees a “piece of the action” mentality, varying grants based on individuals’ value to the company.

The metrics used to value performance should always be business-driven, Schuster said. For instance, a retailer may determine ROI based on measures such as sales per square feet, best customer service, net income and managing expansion of new stores. For other organizations, measuring performance may be more of a judgment call.

The Value Proposition.

“We need to provide market data [on compensation], but it can’t be the be-all and end-all,” concurred Patricia Zingheim, also a partner at the firm. “CEOs are telling us there has to be a compelling value proposition underlying the rewards program.”

When evaluating pay programs, she advised, ask key questions including “Does it reward people who add to business success?” “Does it make it worthwhile for high performers to contribute?” “Does it encourage the right people with essential capabilities to stay?”

“Don’t waste money rewarding the wrong people,” Zingheim added. Instead, “fast-track the top 40 percent for base pay and incentive growth. They typically add five times the value to the business as the other 60 percent. Annually re-evaluate who the best performers are.”

Use individual and team rewards when appropriate, she said. “Where teams are effective, reward the team. Where they aren’t, don’t.”

There may be resistance when companies shift toward higher pay for performance, Zingheim noted, but “It’s in everyone’s interest to have a successful organization that’s moving forward—not least the employees who benefit from career advancement in a growing business.”

“HR does too little in terms of reward ROI assessment,” said Dow Scott, professor of human resources at Loyola University Chicago, speaking at a related conference presentation. “One of the issues top executives say they are most concerned with is aligning human capital and reward systems to business strategy,” he noted. Yet a 2013 survey of WorldatWork members, mainly North American rewards professionals, showed that 74 percent of organizations said their current rewards focus is on market pricing.

“Best practices are usually more likely to be common practices,” added Tom McMullen, North American reward leader at pay consultancy Hay Group, who co-presented with Scott. A majority of organizations don’t evaluate the ROI on their rewards INVESTMENT , he pointed out. “Instead, they are pursuing a me-too strategy based on benchmarking pay to their competitors.”

The benchmarking approach is being challenged, however. As more organizations tie their scarce compensation dollars to business returns that improve competitive effectiveness, “organizations are seeing a greater need to differentiate pay,” McMullen noted.

Scott said incentives payments to sales representatives have traditionally been given out in full view of others, which is intended to motivate the reps’ colleagues to sell harder. He suggested it might be time to consider doing the same with nonsales incentive compensation.

Incentive Compensation Tips and Pitfalls Shared.

Incentive compensation should communicate an organization’s objectives directly to employees, so why do so many plans fall short of success? In presentations at the 2012 WorldatWork Total Rewards Conference, held in Orlando May 21-23, 2012, compensation specialists shared lessons on the effective use of incentive pay programs and warned of errors to avoid.

“First, determine the business strategy and objectives that incentives are intended to drive,” advised Jason Adwin, senior consultant at Sibson Consulting. “The role of incentives is to motivate and engage employees in order to drive intended business results and reward and differentiate employees fairly for the value they create,” he noted. “Some employees are going to give above and beyond, with or without incentives. But the program, by sharing their success stories and modeling their behavior, motivates the others.”

“Know what you provide vs. the market and use it to your advantage” for recruiting talent and ensuring engagement among employees, recommended Elyse Lyons, senior consultant at Sibson Consulting, who co-presented with Adwin.

According to Lyons, incentives don’t work when they become an entitlement, leaving employees disappointed if incentive levels decrease from one year to the next.

Another pitfall: confusing metrics with no clear line of sight, requiring multiple Excel spreadsheets to explain and track. “Employees should be able to figure out the incentive plan on a paper napkin,” Lyons argued.

Also, beware of plans that demotivate high performers through insufficient differentiation and of misaligned efforts that result when teams have conflicting incentives. “One sign of misalignment is when C-suite executives earn incentives and middle management doesn’t,” Adwin noted, adding, “When individual, department and organizational incentives align, employees can see how their actions help the organization to succeed.”

Another common mistake, Adwin pointed out, is requiring effort beyond every day job responsibilities to earn incentive pay. Instead, incentives should reward excellent performance in an employee’s normal job duties if that performance is an outsized contribution to the organization’s success.

Bonus amounts that don’t seem large can change behavior for the better, Lyons noted. She related how when the former Continental Airlines wanted to improve its poor on-time record, the airline began offering a flat bonus of $65 a month to members of crews with the on-time departures. As a result, pilots were helping flight attendants clean up plane cabins to ensure timely takeoffs.

“Train your managers to explain that, when incentives are not earned, ‘the performance of our business would not allow us to give the incentive you wanted,’” said Adwin. “Don’t say, ‘I wanted to give you a bonus but HR wouldn’t let me.’”

Learning from the Sales Force.

“Imaginative incentives really do change behavior,” said Alan Gibbons, managing director of The Reward Practice, a pay consultancy, during another conference presentation. He urged HR to learn from the sales force how to motivate the rest of the organization. “Sales incentives are good at setting clear links between what you do and what you get,” he noted. However, beware that sales incentives might be less effective at recognizing effort as well as achievement, which is also important, he noted.

“When you have excellent people in dispensable roles, you have to push them up to necessary, core and mission-critical jobs,” Gibbons advised. “High-performing individuals in mission-critical jobs will ensure that the organization’s strategic objectives are met. Accordingly, the organization should endeavor to direct the highest pay opportunities—particularly incentives—toward these individuals and away from those who are in jobs of less strategic importance [and] who are performing at lower levels. Put the money where it will make the most difference.”

During the same session, Carrie Ward, director of consulting services at SalesGlobe, suggested informing employees’ spouses about incentive pay programs so they can encourage their spouses to strive for those higher rewards. “Send incentive program information to home addresses,” she recommended.

That view was echoed in another session by Ania Krasniewska Shahidi, senior director at the Corporate Executive Board. “Spouses are the most influential source for delivering benefits information to drive behavior change,” Shahidi noted, adding that “sending communications to the employee’s home and MAKING ONLINE portals accessible to spouses can enhance message impact.”

Other sessions provided further advice on compensation communications. “Employees won’t believe there is a link between pay and performance unless they can see it,” said Margaret O’Hanlon, founder and principal of re:Think Consulting. Unfortunately, “the legal department often warns, ‘Don’t promise anything; keep it vague’” to avoid liability issues, she noted. However, “it’s very difficult to communicate vagueness.”

Sometimes incentives are intentionally designed to be opaque “so employees won’t realize how limited the program is,” added Dan Walter, president and CEO of pay consultancy Performensation. “That’s a terrible idea,” he stressed. “People aren’t stupid.”

“Focus on communications from the beginning, and plan to make communications part of your everyday work,” advised Ann Bares, managing partner at Altura Consulting Group LLC. She pointed to a video interview in which Tracy Kofski, vice president for compensation and benefits at General Mills, encouraged HR to “Start early on communications … What we’ve learned is if we get all of our design ready and we wait until the end to write our communications, we often realize that we would have designed some things differently.”

“Get your managers to a place where they can pull off conversations that effectively connect pay and performance with business results,” Bares recommended. Use employee focus groups to see how well the message is getting across, remembering that “communication is a two-way street.”

She elaborated how at one company management was designing communications for the rewards program based on an assumption that the staff needed prodding to increase productivity. Focus groups, however, revealed that employees wanted to be more productive put felt management was putting obstacles in their way. Communications based on management’s misperceptions would have been seen by workers as belittling them rather than providing motivation, while hearing from workers alerted management to problems that needed fixing.

The Art of Setting Pay.

Early in her tenure with United Grinding Technologies Inc., Director of Corporate Human Resources Christine Taylor, SPHR, faced the daunting challenge of developing a formal salary structure for the company’s 140 employees. The trouble was that the jobs and the skills required for the grinding-machine business, based in Miamisburg, Ohio, were not like comparable jobs in most salary surveys. “It was very hard to find exact matches,” Taylor says. “We were not able to find benchmark jobs.”

Taylor worked with managers to develop detailed job descriptions listing the skills required for each position, then used the job descriptions to find survey data that was a close fit. She ended up relying on compensation data from the U. S. Bureau of Labor Statistics (BLS) as well as industry and professional association surveys to set median salaries and consistent salary ranges for most positions. Because she could not find exact matches for all of United Grinding’s positions, Taylor searched until she found two or three jobs requiring skills that were comparable to the manufacturing skills that her company needed. “It is more of an art than a science,” Taylor says.

Compensation is by far the largest cost item for most companies, so it demands careful consideration. Compensation professionals should find meaningful, reliable compensation data and then use the data to benchmark jobs and set pay levels according to the GOING MARKET rate and the company’s compensation philosophy.

As Taylor’s experience illustrates, this process is not always straightforward. “A good benchmark job is a bridge toll taker because everyone knows what they do—they sit in a booth and take tolls,” says Ira Winsten, director of compensation and benefits for CenterPoint Energy Inc., an energy distribution company based in Houston. “It is when you get into higher levels and roles specific to the organization that it becomes more difficult to benchmark jobs.”

Choosing the Surveys.

Although there has been some consolidation among compensation survey providers in the past few years, there is still an array of choices for compensation data, including consulting companies, industry and trade associations, and the BLS’s pay and benefits surveys. No matter the source, compensation professionals should evaluate each provider and its data with care to ensure that the data are timely and valid.

There are a growing number of free—usually Internet-based—salary data sources, but HR professionals should carefully weigh whether to use information from them. Any data that is self-reported by individual job holders about their own positions and salaries may not be as reliable as data produced by a more rigorous survey process.

“When data are reviewed by third-party professionals, those professionals can look at the job matches and spot any data inconsistencies, which makes that data more reliable than the self-reported data in some Internet surveys,” says Andrea Averill, a principal with Strategic Rewards Consulting Group in Philadelphia.

Compensation specialists who choose to use information from free sources should compare it with at least three other data sources to validate it, advises LoriAnn Penman, SPHR, director of human resources at Spectrum Comm Inc., a government contractor based in Newport News, Va. Free data from online sources tend to be at least a year old, she cautions.

Furthermore, surveys with fewer than 10 or 15 companies “do not necessarily provide a good sense of what the overall market looks like,” says Jason Adwin, vice president at Sibson Consulting in New York City. However, he notes an exception: A custom study of the largest 15 companies in a specific industry or labor market is likely to be more meaningful than a general study of 15 companies.

In addition, the cost of compensation surveys always raises concern among budget-conscious HR leaders. While free BLS data is obviously the most cost-effective option, some business groups and professional associations offer discounts or certain data for free to organizations that participate in salary surveys, so compensation professionals should ask about this when approaching a new survey source. Other providers, such as the Employers Resource Association, offer annual memberships, sometimes based on organization size, that allow access to all or a certain amount of salary data.

Prices for individual surveys vary from a few hundred dollars for professional association data to several thousand dollars or more for custom surveys. The key is determining what data the organization requires and finding a way to access it within budget.

HR professionals should push back if senior managers try to use budgets as an excuse not to invest in strong compensation data: Setting pay at the correct levels remains critical to an organization’s ability to attract and retain employees, and survey research ensures the right compensation INVESTMENT .

Once HR professionals have the data they need, the next step is to benchmark jobs to find the best matches. The survey data shouldn’t be taken as the be-all and end-all when setting compensation.

When data are viewed too narrowly, compensation professionals do not leave themselves enough flexibility, Adwin says. Data are “to be used to make informed decisions based on the specific individual’s performance and experience,” he notes. For example, the data might indicate that a chief financial officer should be paid a certain amount. But a CFO with no experience and a CFO with 25 years of experience add different value to the organization, and compensation professionals need to consider that and other relevant factors.

Also, it might be necessary to make adjustments when a job in a survey does not exactly match an employer’s position. In fact, if the company’s job does not match at least 70 percent of the survey job’s description, compensation professionals should consider whether that survey job is a comparable match.

If compensation specialists cannot find a match for a specific job, they can use internal indicators, such as the job’s level in the organization, along with survey data, to price the job. For example, if specialists are pricing jobs A, B and C and have strong matches for jobs A and C but no match for job B, they can set pay levels by comparing the requirements of A and C with B. In this case, if job B’s responsibilities are higher than job A’s but lower than job C’s, a compensation professional can use the pay data on A and C to set pay for B.

Another consideration: Titles vary from company to company, and it is important to match job requirements rather than titles when using survey data. Some surveys include all jobs reported as, for example, an accounting manager without detailing any responsibilities. But the accounting manager in one company might be overseeing a large department, while the accounting manager in another organization might be limited to support work such as handling accounts payable. “If you see a survey that defines the role and the key job responsibilities, then that tends to signal a good survey,” Averill says.

HR professionals may also need to consider whether their organizations have hybrid positions, which have become more popular postrecession as organizations collapse and merge certain departments and functions. HR professionals whose organizations have hybrid positions might have to apply adjustments or discounts to market data to reflect the actual responsibilities of a given job.

“You might have a director of sales who is also doing some operations work—maybe 70 percent directing sales efforts and 30 percent operations,” explains Spectrum’s Penman. In that case, HR professionals can make sure overall compensation reflects those diverse job requirements by basing pay on that breakdown—70 percent of pay based on comparable sales positions and 30 percent based on comparable operations positions.

This is the case at Birmingham-based Children’s of Alabama medical center. Its compensation specialists rely heavily on health care industry data for clinical jobs, but their data searches often move beyond that.

“Our information technology jobs often require a clinical degree,” says Suzanne Thorn, SPHR, the organization’s director of HR services. Thus, Thorn looks for a comparable job that requires experience and a Bachelor of Science degree in nursing while also looking at information technology job data to see how the position fits into the IT structure.

As a final step, HR professionals should document the rationale behind compensation decisions. “Someone has to know the process well to communicate and explain it to employees if necessary,” says Don McDermott, president of compensation consulting firm D. G. McDermott Associates LLC in Red Bank, N. J. “You don’t need to go into all the details, but you need to make them feel comfortable that you have done a good analytical job of interpreting the data.”

The author is a New Jersey-based business and financial writer.

Overtime Eligibility: Exempt Salary Basis: I want to pay my exempt staffers more than their salaries for the extra work they do. How do I pay them if tracking their time jeopardizes the exempt status?

As you know, exempt employees are not subject to the Fair Labor Standards Act (FLSA) requirement to pay overtime at time and a half of the regular rate of pay. You are not obligated to pay overtime to an exempt employee, but if you want to, you may—without jeopardizing the exempt status.

As long as the exempt employee is paid on a salary basis, you have met your FLSA compensation obligation. Compensating beyond the salary does not dilute or nullify the salary basis, as described in 29 C. F.R. §541.604 . Per that regulation, “Such additional compensation may be paid on any basis (e. g., flat sum, bonus payment, straight-time hourly amount, time and one-half or any other basis), and may include paid time off.” Therefore, you may pay an exempt employee “extra pay” for extra work without violating the requirements for the salary basis test.

Although this extra pay can be paid in any amount, some employers may wish to pay it hourly. To calculate an hourly rate, divide the annual salary by the number of hours to be worked in a year. Hours worked in a year can be figured, for example, by multiplying a 40-hour workweek by the number of weeks in operation each year (for example, 52) for 2,080 hours per year. Divide the annual salary—for example, $52,000—by 2,080 hours. If paying straight time, you would give the employee $25 per hour you wish to pay extra; time and a half would be $37.50 per hour.

It is acceptable to track the time of exempt employees for the purposes of performance, discipline and other organizational matters such as billing and extra pay. However, some employers feel the more they track an exempt employee’s hours, the greater the risk of improper pay deductions and the scrutiny of a Department of Labor (DOL) auditor on the classification in general. For that reason, employers that want to reward the extra efforts of their exempt employees often allow time off or special consideration at bonus time instead of extra wages. Nevertheless, it is permissible to count the hours that an exempt employee works to compensate that employee over and above the salary basis.

Improving Performance Evaluations Using Calibration.

DALLAS—“Few things come out lower on employee engagement surveys than performance appraisals, but we do them because the data is needed” to ensure fairness with compensation, promotions—or terminations, said Dick Grote of Grote Consulting Corp., during his presentation at the 2014 WorldatWork Total Rewards Conference, held here May 19-21.

“A good system doesn’t start with assessment; a good system starts with performance planning,” he noted. “Performance appraisals will always be difficult, but managers make them even more so when they don’t make their objectives clear at the start of the year” — for instance, regarding expectations for measurable outcomes and accomplishments (results) and demonstration of competencies (behaviors).

“If you believe in pay for performance, you must have data to differentiate where people stand,” Grote explained. He proposed the radical notion that performance management systems can actually work, and that employers have “an ethical obligation” to employees to see that they do.

To ensure that performance appraisal ratings are accurate, organizations should use ratings distribution guidelines, have appraisals reviewed by the appraisal writer’s supervisor, and hold calibration sessions.

Distribution Guidelines.

In performance appraisal systems, the 3-tier or 5-tier ratings scales are the most prevalent, Grote noted, although he recommends seven levels, having seen managers frequently try to add “plusses” or “minuses” to the scale in an effort to increase granularity and differentiation.

An ongoing challenge is that when employees receive a middle rating such as a 3 on a 5-point scale, it has “a connotation of mediocrity.” Workers “make the bogus analogy with a ‘C’ average in school. Instead, employers should “send a connotation of success” by defining a “3” as “a good solid performer.” At pharmaceutical firm Merck, a “3” rating is labeled “full Merck standard.”

This is vital because the majority of workers, in an effective rating program, are going to be clustered in the middle in order to truly recognize those who do outstanding work. Relatedly, if almost no one is being rated as needing improvement, “you should consider raising the bar for acceptable performance,” Grote said.

Distribution requirement guidelines, whether “forced” (as in controversial stacked ratings) or, more commonly, simply recommended, help ensure that the ratings have meaning.

“From our school days, we all remember that some teachers were easy graders and some were strict. An ‘A’ from professor Smith was equivalent to a ‘B’ from professor Jones.” Distribution requirements can “ensure that the same yardstick is used, so that performance ratings are accurate.”

Grote offered the following basic distribution requirement as “a reasonable example”:

One issue is weak managers who tell subordinates that “the process” forces them to give out less-than-stellar appraisals. Again, train managers to communicate that a midlevel rating connotes a good, solid performance — and that they are expected to “wear the company hat” instead of passing the buck.

As a matter of policy, Grote also advised that “all performance appraisals and ratings must be reviewed and approved by the appraisal-writer’s boss before any other action is taken.” When managers know that their own supervisor will see how they are rating their direct reports, “it encourages managers to take the matter seriously.”

Calibration Sessions.

The objective of calibration sessions is to ensure that different managers apply similar standards in measuring and evaluating the performance of subordinates — that is, “to ensure a level playing field by neutralizing the effect of ‘tough graders’ and ‘easy graders’ on performance appraisal ratings,” Grote said.

The process typically operates this way:

Managers prepare preliminary performance appraisals, including proposed appraisal ratings. Managers who supervise similar groups of employees meet and post names and ratings for all to review. Participants review and discuss their proposed appraisal ratings for every employee. Participants adjust ratings to assure accuracy and consistency. Final performance appraisals are prepared.

Calibration “makes it easier for managers to deliver honest but negative performance appraisals,” Grote said. It also has the benefit of exposing talented employees to a larger number of senior leaders.

To work well, managers must be trained to prepare for and participate appropriately in a calibration session, and to differentiate performance accurately — particularly when many people are rated the same. Grote also highlighted the need to “provide skilled and brave facilitators” for calibration sessions, particularly the first time. “The facilitator’s role is to make sure that ratings managers have data, not just favorable or unfavorable views,” he noted.

Grote recommends the traditional “low tech” system of using wall-mounted flip charts divided by the ratings scale, with a Post-it note for each employee being evaluated, so that the distribution of Post-it notes in relation to the distribution guidelines is visually clear.

While it’s important to group employees together in appropriate pools based on the common nature of work, the process can work when evaluating large groups, using big boards that take up a good share of wall space and dozens of Post-its, with sessions lasting up to two to three hours.

“Give out ground rules for appropriate behavior during the session, and make participants responsible for policing each other,” Grote advised.

With discussion, Post-it notes get moved as managers realize they may be applying different standards than other managers, and as they share their experiences with employees who aren’t direct reports or their evaluations of those employees’ work results.

Managers may be asked why someone is a “4” and not a “3” — and to justify that decision with data and examples. Similarly, they may be asked why someone whose work is highly regarded wasn’t rated a “4” or a “5.”

“There’s an emotional impact when a manager realizes his or her rating of an employee was too low or too high, and gets up and changes the Post-it’s position,” Grote observed.

Do Stock Options Work as an Employee Incentive?

Stock options as performance incentives have been on a roller coaster ride for decades. They were the quintessential get-rich-quick enticement used by tech startups during the dot-com boom in the late 1990s, but their star later dimmed amid allegations of abuse by unethical companies. So it’s hard for employers to know whether they are still a good, well, option. Many executive compensation consultants say stock options are still a valuable tool—as long as employers know how and when to use them. If anything, stock options may be undervalued as a performance incentive tool, particularly as part of a long-term package.

Alternatives to Stock Options.

As companies’ overall use of stock options has declined, many businesses have shifted to offering other forms of equity compensation, such as:

Restricted stock. With restricted stock, the company promises to pay shares of stock in the future based on performance or time-based vesting, without a requirement that the employee pay for them.

Phantom stock. These are not awards of actual stock, but rather a promise to pay a cash bonus equivalent to the value of company shares.

Stock appreciation rights. Similar to phantom stock, these rights award the appreciation in the value of a certain number of shares over a given period of time.

But it’s important to look at the economic big picture before making any decisions. “In a down market, options can be underwater and can create a disincentive to remain with the company, whereas restricted stocks will continue to have incentive potential,” says David Seitz, director of executive compensation at consulting firm Towers Watson’s Dallas office. “On the other hand, I’ve seen companies abandon stock options, and when I’ve asked why, they say, ‘Everyone else is.’ That is not the best-thought-out approach, either.”

Stock options involve awarding employees an option to purchase stock at a set price, known as the strike price or the exercise price, for a certain number of years. The strike price is usually the value of the underlying stock determined on the date the option is granted, and employees have the right to acquire the stock after the shares are vested, typically over a three - to four-year period.

Employees are economically motivated to exercise the option if the current stock price is above the strike price. The typical exercise period, also called the option term, is 10 years from the grant date, which theoretically allows enough time for the stock price to recover from a down market. In the U. S., option vesting is almost always based on years of service, although it is occasionally based on performance.

Existem dois tipos de opções de ações:

Non-qualified stock options. The most common type of stock options, these are taxed when they are exercised.

Opções de ações de incentivo. Taxation for these options can be deferred until the acquired stock is sold, and it occurs at more-favorable capital gain rates.

However, incentive stock options are subject to a variety of additional regulations and restrictions. For one thing, they can be awarded only to employees and are not available to board members or independent contractors. They also have a $100,000-per-employee limit on the value of stock that can vest in a given calendar year. Finally, recipients are required to hold option-generated stock for at least one year after the exercise date and for two years after the grant date in order to obtain favorable tax treatment.

Establishing Value of Private Companies.

According to David Seitz, director of executive compensation at consulting firm Towers Watson’s Dallas office, private companies can award stock options in one of two ways:

Using independent valuation or appraisal. This involves having an independent firm evaluate the value of the options every year.

Setting a formula. Some companies’ boards establish a formula, with stock price tied to common multiples or benchmarks that measure how the company is doing relative to similar organizations in terms of growth, profitability or other metrics. For example, the formula may be tied to earnings before interest, taxes, depreciation or amortization.

If a company’s stock price never reaches the strike price when the shares vest and during the remainder of the exercise period, both non-qualified and incentive stock options are valueless and expire “underwater.” For that reason, some companies have curtailed awards of options during periods when stock growth has lagged.

Conversely, in industries with high growth rates, such as certain tech fields, options can be a lucrative incentive. However, if the intent is to attract employees and motivate loyalty by giving them a stake in the company, the conditional nature of the options could make them less effective than some other long-term incentives that involve the award of actual stock. There is also the possibility that, if the stocks do pay off handsomely, employees may become independently wealthy and leave the company.

Stock Options Then and Now.

There’s no question that companies’ use of stock options has waned in recent years. “Over the last 10 years, there has been an overall 33 percent decline in companies granting stock options, with 45 percent of large U. S. employers granting stock options in 2014 versus 66 percent 10 years ago,” Seitz says.

There are a number of reasons for this. Many people came to associate stock options with fraud and abuse in the mid-2000s, after they were liberally used by Enron and other companies. A lack of growth further diminished their appeal.

Even at larger companies, stock options typically make up less of senior leaders’ total compensation than they used to. According to the 2014 CEO Pay Strategies Report by consultancy Equilar, 17.5 percent of the value of an average Standard & Poor 500 CEO’s 2013 pay package consisted of stock options, down from 23 percent in 2009.

Where are stock options today? As of 2012, an estimated 9 million employees in the U. S. held stock options, according to Loren Rodgers, executive director of the National Center for Employee Ownership, a nonprofit that serves as an information clearinghouse for stock ownership and equity compensation plans.

High-growth industry sectors, such as biotech and technology, are more likely to offer options. “For double-digit growth industries, stock options are phenomenal long-term wealth builders,” Seitz says.

They tend to be more common in public companies that can more easily establish stock value, notes Steve Parrish, national advanced solutions director at Principal Financial Group in Des Moines, Iowa. Starbucks and Southwest Airlines are two examples.

The largest number of stock options are awarded to individuals who can affect the fortune of the company, and at larger companies in particular, Parrish says.

Checklist for Private Employers.

Experts encourage private employers thinking about using stock options to ask themselves the following questions:

• Will offering options lead to increased employee scrutiny of management due to their vested interest in the company’s profitability as options holders?

• Will it harm the salability of privately held businesses by complicating minority shareholder interests in the company?

• What accounting will be needed to book the value of the stock options and the taxation of discounted stock options?

• Can having too many shareholders convert the business into a public company under U. S. securities rules? This is a clear danger for small companies, as they will become subject to more-onerous public financial disclosure requirements.

• Will shareholders need to approve stock option plans, including details such as classes of employees and others eligible for the options? What about the number of shares of company stock reserved for issuance under the plan?

• Do employers have the right to repurchase shares if an options holder leaves the company?

• What is the vesting treatment of stock options if the company undergoes a change in control? Recently, there has been a global shift away from vesting based solely on a change in control of the employer (“single trigger” vesting) toward a condition that also considers termination of the employee (“double trigger” vesting).

They are also common among startups. “My client base is primarily privately held companies that are startups looking forward to a liquidity event like an initial public offering [IPO] or the sale of the company to a larger company,” says Alison Wright, a partner in the San Francisco office of law firm Hanson Bridgett LLC. Pretty much across the board, startups offer stock options to employees, even at companies loaded with cash, because the offering reflects the company’s potential, she says: “Employees get in early, get options at a low price, and then there is a liquidity event that dramatically raises the value of the company stock, which is where employees expect to make the big bucks.”

Consider the November 2013 IPO of social media giant Twitter. Twitter executive Ali Rowghani exercised 300,000 stock options at 84 cents each and sold the shares for $33.76 per share, resulting in a $9.9 million profit.

Many companies tend to offer restricted stock to entry-level employees; a mixture of 50 percent time-vested restricted stock and 50 percent performance-based shares to more-senior-level employees; and a mixture of stock options, performance-based shares and time-vested restricted shares to the most-senior executives.

Should you grant stock options broadly or target them to senior management? There are pros and cons to each approach.

“Most tech companies, especially in the San Francisco Bay Area and Silicon Valley, grant options to everyone, even though the CEOs get more of them,” Wright says. “That can foster teamwork and creativity in a startup company. On the other hand, in some industries and in some geographic locations, it is likely that lower-paid employees would rather have EXTRA CASH , which is easier to understand and to spend.”

The timing of stock option awards varies. “There is no right or wrong when it comes to methodology, and many times it is unique to the culture and ethos of each company,” says Carrie Kovac, West Coast regional vice president at E-Trade Financial Corporate Services, an equity compensation plan manager. Most companies award stock options annually as part of total target compensation, and many tech companies give them throughout the year. To compete for talent, some employers offer stock options at the time of hire. “Performance is often also a factor in the award frequency and grant size,” Kovac says.

“We have even seen a few companies that let their employees decide,” she says. “Employees can choose their compensation ‘mix’—for example, 60 percent total compensation in stock and 40 percent in salary.”

The amount of stock to provide employees is also a key question. It’s best not to think of it as a percentage of all shares outstanding, Rodgers says. “Instead, look at it from the perspective of the employee. The point is how to align the incentive with what will motivate them. What percentage of base pay [do you want it to be]? It will be different percentages for different companies.”

Employers that decide to offer stock options must clearly communicate the benefit’s value to employees. An October 2014 report from UBS Wealth Management Americas found that 60 percent of employees do not place significant value on equity awards.

The survey identified three actions companies can take to involve employees and drive engagement around equity compensation plans:

Drive a strong culture. There is a correlation between a strong corporate culture and employees’ belief in the future prospects and value of equity awards at their organization.

Ensure that the plan design is straightforward. If employees can easily understand the plan, they are more likely to grasp the value of the awards.

Deliver personalized advice. Targeted communication, including offering one-on-one conversations between employees and business or financial specialists, will help explain the value of equity benefits and their place in employees’ overall financial plans.

“When employees believe that companies perform highly in these three areas, they place significantly more value on their equity awards,” says Michael Barry, head of Weehawken, N. J.-based UBS Equity Plan Advisory Services.

The UBS research found that stock options were viewed by employees as one of the more complicated performance incentives, second only to performance shares. Thus, it’s important that employers offering stock options also offer support if they want their employees to properly value and leverage the benefit.

While stock options may not seem as sexy as they did during the Internet gold rush of the ’90s, they’re still well worth considering as performance incentives. And offering clear communication and support will help make them an even better option.

David Tobenkin is a freelance writer based in the Washington, D. C., area.

Integrated Well-Being Initiatives Yield Healthy Results.

Organizations are discovering that a more successful approach to well-being goes beyond an employee’s physical health, according to the March 2015 Total Rewards and Well-Being survey report from survey report from WorldatWork, an association of total rewards professionals.

“Today, we’re seeing more companies create flexible work schedules, introduce financial literacy tools, offer unique child care and elder care assistance programs, and promote stress - and time-management skills,” said Rose Stanley, WorldatWork senior practice leader, in an e-mail to SHRM Online . “All of these integrated approaches encourage a more successful and productive workforce.”

The report analyzes findings from a survey fielded from Dec. 10, 2014, through Jan. 16, 2015, with underwriting support from HealthMine, a wellness technology firm.

Among the survey respondents (made up of WorldatWork members at mostly large North American companies), 39 percent said their organizations are operating with an integrated approach to overall well-being as opposed to a more traditional wellness program approach. Additionally:

The measured effect on health care costs is more likely to be rated as extremely positive or positive at integrated well-being organizations (73 percent) vs. traditional wellness organizations (53 percent). The measured effect on employee satisfaction is more likely to be rated as extremely positive or positive at integrated well-being organizations (77 percent) vs. traditional wellness organizations (68 percent). Higher turnover rates are more common at traditional wellness organizations (52 percent) vs. integrated well-being organizations (39 percent).

In addition, a majority of respondents said they would still continue to offer well-being programs even if at some point employer-sponsored health care was no longer provided by their company; 95 percent of respondents said they would keep workplace safety programs, 92 percent would continue to encourage time away from work and flexible schedules, and 90 percent would preserve their employee assistance programs (EAPs).

• Work-life balance. Nearly three-fourths of employees want flexible work hours, and those who do are nearly 20 percent more engaged. However, fewer than half of employers provide flexible work hours.

Building a Market-Based Pay Structure From Scratch.

Scope — This article—primarily for the benefit of HR professionals who are not compensation specialists—discusses all the steps involved in developing and implementing a market-based pay structure. It refers to but does not include a detailed discussion of job evaluation or of other internally focused methods of setting base pay. It also does not include executive compensation.

Many organizations ask their human resource professionals to create a base pay structure from scratch or to revise the existing structure to meet their changing needs. For HR professionals whose areas of expertise lie outside the compensation arena, such a project can seem challenging at best.

The compensation system development process, however, does not have to be an overwhelming and dreaded goal. Building a market-based pay structure from scratch encompasses the following steps:

Gathering the background information needed for project success. Determining your sources of external market data and getting the data ready. Conducting the market data analysis. Developing the pay structures. Calculating the costs of the pay structures. Implementing and evaluating the new pay structures.

This article walks through each of these major steps to help the novice successfully develop a complete pay structure from scratch. Those seasoned in compensation will find the article helpful in keeping their compensation skills current in today’s volatile compensation markets.

Caso de negócios.

One of the most basic functions of business management is to establish a compensation scheme that is competitive and equitable and that promotes employee engagement and high performance.

HR professionals are key in this process. HR professionals assist managers in determining the functions the organization needs performed, the best organizational structure, the market clearing price for such job functions, and ways to communicate the compensation scheme so that it is perceived as equitable and so that it encourages high engagement and high performance by employees. HR professionals must do this in an environment where the legal landscape is constantly changing under several federal laws.

Step 1: Gathering Background Information.

Building anything of value requires a reason or business philosophy and strategy. To ensure success of the project and complete support from the top down, the project needs a plan that explains why the system is being built, what is to be built, how all the pieces fit together and what the expected end result is. To build anything from scratch requires an architect to create a plan as well as a champion to guide and drive the process. That champion serves as the catalyst to align decision-makers and resources. That way, what is being built successfully aligns with the organization’s business philosophy, culture, vision and mission, values, resources and strategic objectives. Similarly, building a pay structure from scratch requires the architect to articulate the compensation philosophy, clarify concepts that define the fundamental beliefs about the structure, and design and develop the strategy. The process also requires a champion to align decision-makers, obtain buy-in from the top of the organization and execute the plan.

Human resource practitioners are in the best position to serve in both the architect and champion roles to accomplish these tasks. The first step in the process of building a pay structure is articulating the organization’s compensation philosophy and strategy.

Defining the compensation philosophy.

A well-designed compensation philosophy supports the organization’s strategic plan and initiatives, business goals, competitive outlook, operating objectives, and compensation and total reward strategies.

As such, most compensation philosophies define the following basic tenets:

To identify what the organization’s pay programs and total reward strategies are. To identify how the pay programs and strategies support the organization’s business strategy, competitive outlook, operating objectives and human capital needs. To attract people to join the organization. To motivate employees to perform at the best of their competencies, abilities and skill sets. To retain key talent and reward high-performing employees. To define the competitive market position of the organization in relation to base pay, incentive compensation and benefits opportunities. To define how the organization plans to pay and reward competitively, based on business conditions, competition and ability to pay.

A strong compensation philosophy is typically tied to an organization’s mission, core business, operating strategies and competitive outlook. For example, a high-tech organization, with a core business strategy to attract and retain the top professional and managerial talent in the industry to outdistance competing organizations, might adopt a pay philosophy and strategy of leading the market with its total cash compensation package or of paying higher than other organizations in the industry.

In another example, a warehouse, distribution and retail organization that has low employee turnover and exists in a demographically contained community with a large labor pool might adopt a pay philosophy and strategy of offering a compensation and total rewards package that is valued less than that of a similar organization located 50 miles away in a highly competitive community with labor shortages and high employee-demand issues. In this scenario, this organization adopted a philosophy of matching supply and demand conditions for its own community and set the policy to control cost.

An effective compensation philosophy should pass the following quality test:

Is the overall program equitable? See , Managing Pay Equity. Is the overall program defensible and perceived by employees as fair? Is the overall program fiscally sensitive? See , Employers Assessing Salary Programs for Affordability, Competitiveness. Are the programs included in the compensation philosophy and policy legally compliant? See , Conduct a Pay Equity Study to Mitigate Litigation Risks. Can the organization effectively communicate the philosophy, policy and overall programs to employees? Are the programs the organization offers fair, competitive and in line with the its compensation philosophy and policies?

To effectively exist and thrive in today’s competitive marketplace, many organizations realize that a one-size-fits-all strategy regarding compensation philosophy does not work. Different philosophies may be developed for different employee segments, such as “hot jobs,” information technology, “hard to fill,” administrative and operations.

By virtue of its position in the organization, HR can best serve as the architect of and champion for articulating the organization’s compensation philosophy and strategy. To serve effectively in those roles, HR needs to develop a knowledge and understanding of the following:

The marketplace for labor. The compensation and benefits survey tools necessary to scan the competitive marketplace. The jobs in the organization. How supply, demand and labor market issues affect the organization. The operational and legal ramifications surrounding the compensation and total reward programs the organization is considering or currently offering.

Although HR is clearly in the lead in developing an organization’s compensation philosophy and policy, success lies in close collaboration with the leadership team to obtain valuable input, direction and concurrence.

Some important questions to ask the leadership team in developing an organization’s compensation philosophy follow:

Does the organization wish to lead, lag or meet the market in terms of compensation and total rewards? How does this decision vary by position type?

Is the organization currently leading, lagging or meeting the market? Por quê? Where is the organization positioned in terms of market competitiveness? What is the organization’s mix of base pay, variable and incentive pay, working conditions and benefits offerings? How are pay and total rewards distributed? Do employees value the organization’s programs, including pay, health care benefits, retirement and savings benefits, vacation and paid time off, incentives, and profit sharing? What are the strengths and weaknesses of the organization’s current compensation and total rewards programs? Is the organization able to attract, hire and retain the human resources it needs to be competitive and operationally effective? Can the organization afford or effectively execute its current or proposed pay programs? Does the organization have any potential constraints in executing a unified and consistent compensation philosophy, such as legal, union and non-union issues, internal and external labor markets, or special contracts? Is the organization having trouble hiring employees? If so, in what jobs or geographic areas? How long do employees stay with the organization? What is the turnover rate at the organization? Why do employees leave the organization? Where are they going? What are the organization’s career development and promotion policies and strategies? What is the organization’s labor mix? Who are the organization’s main competitors? How will the organization align pay and rewards with individual, team and organizational business initiatives and performance expectations?

By obtaining valuable input from the leadership team and by adopting a collaborative process to answer important strategy questions, human resources effectively creates the environment necessary to align and obtain concurrence and buy-in on a compensation philosophy from key decision-makers. This process does not happen overnight. Rather, one or two discussions of two to four hours each with management team members will generate the necessary, diverging viewpoints that best represent consensus on how to link the compensation philosophy and policy to the organization’s mission, core business, operating strategies and competitive outlook necessary to be successful.

Other items HR professionals need to gather at project start include the following (approximate time required will vary based on the size of the organization and other complexities like locations, reporting structures and level of management layers).

Step 2: Selecting Sources of External Market Data and Preparing the Data.

A quick Internet search will provide the HR professional with a wealth of compensation surveys. Without formal compensation training, such findings can be overwhelming. How do you know which surveys are reputable? Which ones are up-to-date? Which ones provide the best value for the cost? With great focus undoubtedly on the pay structure development process, HR must make the right decisions regarding salary surveys prior to the start of the market analysis process.

Finding one data source that meets all of an organization’s needs is rare. Using multiple data sources is critical in allowing for cross-validation and filling in information gaps. HR has several options when contemplating salary data sources:

Purchase a salary survey from a survey organization such as a consulting company. Commission a customized salary survey through a consulting company. Purchase a salary survey from a trade organization or association. Use wage data from the Bureau of Labor Statistics (BLS). Commission a custom survey.

Beware of free surveys. Many individuals new to compensation, especially those without a budget to purchase salary surveys, will explore websites that offer free pay data. Such data vary in their reliability. As such, HR professionals should not rely on them for building pay structures. Many organizations have experienced the fallout from such survey data—everything from employee visits to the HR department showing that they should be paid more because “it says so on the Internet” to union organizing drives premised on these Internet numbers.

The issue with such free data, with the exception of BLS data, is that their origins are unknown. Many of the surveys lack a survey participant list. Moreover, why would an organization provide its data for free when reputable survey organizations may charge thousands of dollars?

Organizations and consulting companies. Several reputable, long-standing organizations specialize in producing salary surveys. Typically, the global compensation consulting firms are also major players in the survey reporting business. When purchasing these surveys, keep in mind that prices will often be considerably lower for survey participants than for nonparticipants. Also, some consulting organizations sell their survey reports only to participants.

Several outstanding but lesser-known organizations also produce quality survey reports. Searching the Internet with keywords such as the relevant industry or geographic region will turn up many of these groups.

Trade and professional organizations. Trade and professional organizations and their publications are another credible source of salary data. They generally offer surveys to members for free or reduced prices but also sell them to nonmembers at reasonable rates. Sometimes these organizations do not openly advertise their surveys, but a quick call can help identify options. Be aware of the potential for bias in these studies, however, inasmuch as these organizations exist primarily to serve their members.

BLS wage data. Another option, the BLS offers data cuts by occupation, industry and geographic area. The data are free, so caveat emptor : The information may be a bit dated. The most relevant results come from using data that are no more than one year old, but if there is no budget for surveys, BLS data are better than guessing at something so important. You can progress the data by the market wage increase rate to bring the information approximately up-to-date.

Custom survey. If data are not available for a specific position, industry or region, use a custom survey. The best method is to engage an independent third party to collect and summarize the data. The third party can assure participants that the data will be kept confidential, which should elicit more and better information from them. Using a third party will also ensure compliance with the Department of Justice antitrust guidelines, minimizing your organization’s legal risk.

Organizations like the flexibility custom surveys offer in terms of fine-tuning the data gathering to very specific needs. However, custom surveys can take anywhere from two to four months from conception to completion, so the time and cost factors often outweigh the benefit of more precise data.

Linking the surveys to the compensation philosophy.

Most robust surveys will allow for multiple cuts based on revenue category, industry and geography. The next step is to determine which cuts to use. Those decisions should tie back to the organization and its compensation philosophy and yield data that most closely match.

Geographic. Often, the geographic cuts used—national, regional or local—parallel an organization’s recruiting strategy. That is, organizations typically recruit nonexempt employees locally, so relying on local market data for these positions makes sense. On the other hand, organizations are likely to recruit nationally for executive positions. National data may be more appropriate for those jobs, except in a very low-cost labor area (e. g., rural areas or southeast United States) or a very high-cost labor area (e. g., San Francisco and New York). In the case of the latter, in which market rates tend to deviate significantly from the national, using city-specific or possibly regional data may be more effective.

National survey reports often provide either geographic data breakdowns or factors for adjusting the national data for local areas. Some survey providers also report wage differentials for use in factoring national data to local market needs. Keep in mind that SHRM offers its members a robust online feature that allows members to select the type of survey they seek[SK1] . SHRM will then send an e-mail listing survey organizations that provide that type of survey.

Indústria. Next, consider whether to use industry-specific or all-industry data, again referring back to the compensation philosophy. If the relevant industry is very competitive and employees often move among competitors, focus on industry-specific data, which may tend to be higher than all-industry data. In some organizations, particular positions may call for industry-specific data, such as IT positions in a high-tech company. For positions in other departments in the same organization—e. g., finance, accounting and human resources—all-industry data cuts may serve the purpose because qualifications are not industry-specific.

Revenue category. Most employers tend to use data from organizations of a similar revenue size across all levels of positions. For a more precise assessment, however, some organizations focus on a select subset of similarly sized employers. This method is most easily done via a custom survey but can also be accomplished by purchasing data cuts for the targeted group of companies from a consulting organization. To ensure confidentiality, the data cut is never made at a level that would allow identification of individual employers’ pay data.

In selecting a group of organizations, look beyond the specific industry and identify companies from which you hire or to which you lose employees. Some employers fine-tune their data even more by selecting multiple groups of companies on the basis of their similarly sized functional groups—for example, IT and sales.

Ensuring quality data in your analysis.

HR professionals should consider the following features when determining the quality of a survey.

Cost. All quality surveys will cost something, but participants to a survey may enjoy a significantly reduced purchase rate. HR professionals must budget for an annual expenditure on and investment in salary surveys.

Participants. Surveys should have an easily accessible list of participating organizations, so the consumer can determine whether the survey group is relevant from a recruitment and retention perspective. Ideally, the survey will demonstrate a low level of “participant churn” and have enough participants to allow reporting of market rates. Typically, surveys will not report market rates unless at least five data points are available to calculate percentile information. For some metropolitan areas, surveys are periodically unable to report market rates. By and large, however, the survey should have enough participation to provide market rates at the national, metropolitan and various revenue levels.

Moeda. Most organizations specializing in salary surveys conduct them annually to capture changes in the market. Some trade and professional organizations, however, may survey their members only every other year or every third year. Be sure that a survey more than a year old provides enough value and accurately reflects the market before including it in the analysis.

Applying statistical terms to the compensation philosophy.

Most surveys report a variety of data points for use in market analyses. Surveys often provide the average market rate, also known as the “mean.” The 50th percentile, also known as the “median,” is the most commonly provided percentile statistic. The survey may also provide the 10th, 25th, 75th and 90th percentiles. These percentiles should, at the very least, be available for base compensation and total cash compensation, which is base + variable pay (bonus or incentive).

Some surveys may also show “targeted” total cash compensation versus “actual” total cash compensation. For example, a finance manager’s target variable pay may be 15 percent of base pay, but he or she actually received an incentive payout equal to 10 percent of base pay. In addition, some surveys report statistics around stock options and restricted stock.

To determine the appropriate percentile to use when reviewing market data, consider the compensation philosophy.

Matching the market. To target the 50th percentile means that an organization wants to pay in the middle of all organizations that have a similar position. In other words, 50 percent of the organizations should be paying less than that market rate, and 50 percent should be paying more than the market rate. “Matching the market” is the formal name for this approach.

Market leader. If an organization chooses to focus on the 75th percentile and take a “market leader” position, it will pay higher than 75 percent of other organizations with similar positions. Organizations competing for employees with specialized skill sets in a tight labor market or organizations that want to be a high payer in the market typically select a market leader position. Organizations with less robust variable compensation or benefits programs may also select a market leader base pay position to end up with an overall 50th percentile total compensation program.

Market lag. If an organization chooses to focus on the 25th percentile and take a “market lag” position, it will pay higher than only 25 percent of other organizations with similar positions. Organizations with strong variable compensation or benefits programs, or those encountering financial difficulties, may opt for a market lag position.

Lead-lag. As an additional variation, some organizations may choose to lead the base pay market for the beginning of the fiscal year and then lag at the end of that year. “Lead-lag” is the formal name for this approach to base pay management.

Organizations can lead, lag or match the market at various levels of market position by using a fixed percentile position or a fixed percentage above or below a point. For instance, an organization can build its position at 10 percent above the 50th percentile by increasing the survey rates by 10 percent. Spreadsheet programs afford the user robust data analysis capabilities and rapid “what if” scenario modeling.

Salary surveys capture salary data at a specific point in time in the past. However, the market continues to move because of pay increases, market adjustments, promotions and employee job transfers. As such, it is necessary to “age” or “trend” the data to a common point in time—for example, today’s date, the date the pay plan will go live, beginning of new fiscal year—using a factor that reflects market movements.

HR practitioners should note the effective date of salary survey data to age the data to a common point in time. Look for a clear statement about the effective date for the survey data in the first few pages. Note that this may be different than the publication date that appears on the front of the survey. Although data can be aged for several years, using data more than two years old is unwise, as older data points often lose market reliability. Aging becomes all the more important when using multiple surveys with multiple effective dates.

This market movement factor can be determined a number of ways. Associations such as SHRM and WorldatWork that report on trends in performance-based pay (i. e., merit increases) can provide a recommended aging rate. Several of the major survey organizations also conduct annual merit increase surveys and provide their own estimates of the appropriate aging factor.

Some organizations select one aging percentage and use it across all jobs and surveys. Others may choose to age data by job, job level or job family to reflect differences in the market or “hot jobs.”

Aging survey data is not as complex as it sounds, as the following four-step process demonstrates:

Determine the date for the new pay structures. The data in a survey have an effective date of January 1, 2013. You need to know what the projected rate would be on July 1, 2008, for implementation of the new pay ranges. Determine the wage movement percentage. Your research shows that wages are moving, on average, 4 percent per year. Determine the aging factor. There are six months between January 1 and July 1: 4.0 percent movement x (6 months/12 months in a year) = 2.0 percent. Apply the aging factor. If the survey reports that the 50th percentile for a given job on January 1, 2008, is $15.00, the projected rate on July 1, 2008, is $15.30. (Two percent of $15.00 is $.30.) Use $15.30 to develop your organization’s pay scales on July 1, 2008.

Step 3: Conducting the Market Data Analysis.

After obtaining and preparing the data, begin the market analysis.

The first step in market data analysis is to determine the benchmark jobs, or positions that will be externally market priced. It is sound practice for an organization to benchmark between 50 and 65 percent of its jobs when using market pricing. Benchmark positions should aim to include at least 70 percent of the employee population.

A benchmark job is one that has a scope of work and responsibilities common to other organizations or industries. Typically, benchmark jobs can be determined by comparing an internal job description to a survey job summary or capsule.

Jobs with similar roles usually exist across the organization. For example, many different departments have administrative assistants. Though the job descriptions may differ slightly, that group of positions most likely equates to one benchmark job. Examples of benchmark jobs might include accountant, chief financial officer, registered nurse, fundraiser and underwriter.

Survey descriptions are high level and capture only the major job functions, not every detail and nuance of a job. Many surveys include a “degree of match” indicator, allowing participants to indicate whether their job is bigger than, equal to or smaller than the survey job. If relying on a single survey, use caution if more than 25 percent of the survey participants indicate their job is either smaller or bigger than the survey job. You may need some data adjustment (also called factoring or leveling) to account for this scope difference.

Additional tips for identifying benchmark positions include the following:

Always compare job descriptions—never titles alone—when deciding whether a survey job is a good match to an internal job. Titles vary widely from organization to organization in terms of scope size and responsibility. When a benchmark job matches at least 80 percent of a survey job summary or capsule, consider it a good benchmark. Select benchmark positions that represent a wide spectrum of the organization’s functions, departments and levels such as type of work or job family and level of work being performed (e. g., manager versus individual contributor, junior level versus senior level). Review the benchmark position list two or three times before finalizing your list; benchmarking can be more of an art than a science.

Benchmarking positions against the market.

Benchmarking positions against the market is not an easy task. However, by keeping the following points in mind, the process can be effective, efficient and accurate, and yield an effective base pay system for the organization.

Review for outliers. After pulling the various market data points, review the salary data for outliers (extreme data points on either end), and remove as appropriate:

If the data show extreme highs or lows from one year to the next or if one data point seems high or low, check to see if the number of organizations or number of incumbents changed from a prior year’s report. Rejecting a data point is appropriate if it does not appear valid, but do not automatically exclude data because they are the lowest or highest—especially when using multiple surveys.

Adjust as necessary. Use three or more surveys to lessen variability in data from one year to the next. Adjust data as needed, including the following common data adjustments:

Adjust for geography when benchmarking positions with a local recruiting market against data collected nationally. Adjust for premiums and discounts when benchmarking internal jobs against survey jobs of a higher or lower scope. Adjustments to benchmarks reflect factors such as scope size, scope of responsibility, market demands and niche skills. Premium and discount adjustments should not exceed +/– 20 percent to still be considered a solid match. For future reference, always carefully document any adjustments or changes to a job match.

Create a market composite for each benchmark position. Combine data points from several surveys either by simple average, employee-weighted or organization-weighted data to develop composite market data. Most surveys report 25th, 50th and 75th percentile data points for base salary, bonus targets, actual bonus payouts and total cash compensation. When using surveys, be aware that the 25th and 75th percentile data points have less reliability and can fluctuate more year to year.

Averaging the individual 50th percentile data points from each survey creates the market composite 50th percentile value. Sometimes, however, an organization values the data in a specific survey more than in others. As such, that survey’s data can be double or triple weighted in the calculation to emphasize its importance. In addition, be careful of weighting survey sources equally, especially if one survey has a larger sample size. Use judgment in reviewing the data to determine the best approach. There is no right answer, but as long as you are consistent, the results will be internally accurate.

Review current pay rates against market data. Review each benchmark’s current employee average pay rates against the target market data. Pay particular attention to those positions with a 20 percent difference above or below the market. Be sure that the matches accurately reflect the duties in the benchmark position, and make changes as needed.

The composite market data points not only provide the tools necessary to create the pay structures but also allow comparison between the market and the organization’s compensation philosophy. Reviewing the market data can confirm that the organization has selected an appropriate compensation philosophy for its talent management needs, strategic plan goals and fiscal realities. Reviewing with senior management the high-level composite market data against the compensation philosophy also affords the opportunity to obtain further buy-in and any necessary modification to the compensation philosophy.

Step 4: Developing the Pay Structures.

Use the composite market data to develop the actual pay structure by constructing job grades, building a market pay line and calculating the pay ranges.

A job grade or job level is simply a group of different but internally equivalent jobs. Grades enable flexibility and internal equity in an organization by providing a framework in which equivalent jobs are treated equally for pay purposes. Grades also establish a promotional ladder for employees.

For complex roles and larger organizations, formal job evaluation is needed to identify which jobs are internally equivalent. The process may take some time to complete, but it will assist in creating a defensible and transparent salary system. In new or recently restructured organizations, job evaluation is particularly helpful in clarifying the role, responsibility and reporting relationship of each job.

A complete description of how to do job evaluation is outside the scope of this paper. In brief, formal job evaluation is a process for analyzing a job based on a number of criteria such as knowledge, experience, decision-making authority, autonomy, supervisory responsibility, creativity, physical demands, job environment, job scope and organizational relationship. Many samples of job evaluation questionnaires are available on the Internet or through consulting companies.

Formal job evaluation systems usually provide results in numeric points, which enables spreading these points into job grade categories. Dividing lines between job evaluation points is challenging and hence must be based on a consistent logic driven by both the main driver of the job evaluation points and business strategy. Some trial and error may be required to arrive at the right structure with the correct number of grades and job grouping.

A simpler method of developing job grades is to do whole-job slotting, which delivers approximate assessments of internal value. In this method, factors such as reporting relationship, job scope and current pay relationships determine grade placement.

In many organizations, the number of job grades matches the number of pay grades, and those terms have been used interchangeably herein. Having more job grades than pay grades is possible, however, by combining a few job grades into the same pay grade. This is usually done in organizations where the culture supports career path promotions such as a technical career path. When combining multiple job grades into one pay grade, the range minimum is based on the junior-most job grade, and the range maximum is based on the senior-most job grade in that pay grade. This method enables employees and managers to be aware of the potential progression possible from the starting role to the ending role in a particular career path. (Range minimum and maximum are explained below.)

A market pay line is built using the composite market data points. It allows an organization to translate the market data into usable information.

Building a market pay line starts with plotting the matched jobs and their dollar amounts on a graph. The grades or benchmark jobs at each level determine the ordering of the jobs on the X axis. You can use freehand to connect the data points as shown in Figure 1 or use a regression analysis tool to create the market line. A number of programs, including MS Excel, build the regression analysis line (Figure 2). Simply put, regression helps smooth the data and have a fixed rate of variation between different points, especially when there are multiple benchmark jobs and some variation among the data. The linear line shown in Figure 2 is the smoothed pay line for the base salary.

Figures 1 and 2 show base salary, total cash compensation and, as an example, total compensation at the 50th percentile (50P) level. As previously covered, the appropriate percentile to use depends on the organization’s target market philosophy.

A pay range exists whenever an organization must pay different amounts to employees in the same job grade. Ranges provide flexibility to managers to recognize factors such as experience and performance. Ranges also permit the recognition of learning curves and performance variation of employees in their roles. Typically, organizations only calculate base pay ranges because base pay reflects the guaranteed cash payments and the basic value of the work.

Pay ranges are calculated for each job grade and are simply a spread plus and minus of the target/market pay point, also known as the range midpoint. Range maximums set the ceiling for a particular pay grade. Range minimums set the floor. Typically, for junior-level jobs the range spreads are small or perhaps even nonexistent when flat rates are used. On the other hand, range spreads are often wide for management roles to reflect the performance and learning curve variation.

The midpoint corresponds to where the pay line crosses each grade (Figures 1 and 2). For example, in Figure 1 for grade B the base pay line crosses at $35,000, and hence, that will be the midpoint for the range at grade B. Judgments about how the ranges support career growth, performance rewards and promotions determine range spread. Ranges tend to widen as you go higher in the organization. Organizations can have ranges with a spread of 25 percent at lower grades to 75 percent for senior roles. In fact, an hourly job has a range of zero because it has a fixed pay rate for the role irrespective of performance, seniority and so forth. Wider ranges at senior roles reflect the opportunity for individual discretionary performance, longer learning curves for the position and longer lengths of stay of incumbents in the same position.

The following are examples of two ways to calculate a range minimum and maximum:

Calculate 20 percent above and below the midpoint. In Figure 1, grade A has a midpoint of $20,000. The minimum and maximum are $16,000 and $24,000. In this example, the range spread is 50 percent [($24,000 – $16,000) / $16,000 = 50 percent]. An alternative way to calculate range spread at a fixed percentage: minimum = midpoint / [100 percent + (1/2 the percentage range spread)]. Calculate the maximum as minimum + (percentage range spread x minimum). Continuing the 50 percent range spread example above, calculate the minimum as [$20,000 / (1 + .25)], or $16,000. The maximum is calculated as [$16,000 + (.50 x $16,000)], or $24,000.

To ensure accuracy, the key is to choose one of these methods and use it consistently.

On occasion, some organizations use the actual market positions of 25th percentile and 75th percentile as the minimum and maximum points for the ranges. This is a possibility if the approach is based on the organization’s desired market position. Keep in mind, however, that the 25th and 75th percentiles are subject to greater fluctuations in surveys from year to year. An organization may also end up with very tight range spreads (e. g., 20 percent) or very wide range spreads (e. g., 80 percent) due to variation in the market data.

Ranges between grades tend to overlap. The extent of overlap can be measured as follows, continuing the example from above:

If there are two grades, A and B, and B is higher than A, then overlap equals 100 x [(maximum of grade A – minimum of grade B) / (maximum of grade A – minimum of grade A)].

Although there is no ideal amount of overlap, too little overlap can lead to high cost during promotions. Too high of an overlap will lead to low interest in promotions because the amount of promotional increase will be too low. Figure 3 shows an example of a pay structure.

Broadbanding is another approach to setting the pay range, which is outside the scope of this paper. Generally, however, broadbands consolidate three to five traditional ranges into one single band. Bands will typically have a minimum and a maximum but no midpoint. Range spreads in a broadbanding system will usually be 100 percent or more. Organizations use bands to create flexibility within the organization and to break down barriers to promotion and career development. See , Broadbanding.

Compensation is partly art and partly science. Because internal job evaluation or internal slotting of jobs determines job grades, these reflect the internal value, whereas the pay ranges reflect the market or external value. Inherently, some instances of misalignment will occur between the two. On occasion, jobs may be re-slotted. This situation occurs when the position has a greater strategic importance to the organization than the external market reflects. In other cases, the position may have less value than the external market affords it. Use such re-slottings of benchmark positions sparingly and with caution to avoid undermining the foundation of the job evaluation system. The goal is to minimize misalignments as much as possible to ensure the compensation system meets the organization’s needs for strategic success.

Step 5: Calculating the Costs of the Pay Structures.

After creating the new pay grades and ranges, the next project step is to consider the financial impact of those ranges. One of several approaches provides HR and management with the necessary financial impact information:

Bring-to-minimum calculations. Compa ratio analysis. Adjustments for compression and equity.

The simplest but often most essential calculation is the bring-to-minimum adjustment. In this scenario, the financial model compares each employee’s current pay to his or her new pay range minimum. Employees with pay rates below the minimum receive an adjustment to the minimum of the pay range. These pay rates are also known as green circle rates. Employees with pay rates above the minimum receive no adjustment.

For example, continuing our earlier scenario, employee X and employee Y are both in pay grade A. Employee X earns $15,000 a year. As the minimum is $16,000, employee X would receive a $1,000-a-year pay increase. Employee Y, on the other hand, earns $22,000. As such, employee Y would receive no bring-to-minimum adjustment. Totaling the annualized bring-to-minimum adjustments for all employees provides the total annualized bring-to-minimum cost impact of the new pay system. This figure divided by the total current payroll allows management to see the cost impact from a percentage point of view. For example, if an organization’s total payroll is $1,000,000, and total bring-to-minimum adjustments are $20,000, the total bring-to-minimum cost of the program is 2 percent of current payroll.

Comparisons of current employee pay and the new system midpoints determine compa ratios. The formula for compa ratio is current employee pay divided by current range midpoint. Continuing the example from above, employee X’s compa ratio before any pay adjustments is 75 percent, or .75 ($15,000 / $20,000). Employee Y’s compa ratio is 110 percent, or 1.1 ($22,000 / $20,000). Compa ratios are useful for identifying at a glance which employees’ pay rates are below the minimum (green circled) and above the maximum (red circled), and which employees fall above or below the midpoint. If most employees’ pay rates fall above the midpoint, the new system risks quick obsolescence. Ideally, the majority of employee pay rates should have room to grow in the pay ranges.

Organizations may want to consider adjustments that address undesired compression, such as closeness in pay rates, between employees. Organizations may adjust pay rates to reflect length of service, experience or performance. In these situations, employees’ pay rates may be increased a certain percentage above the range minimum for each year of service or higher level of performance. Employees with pay rates higher than the recommended adjusted rate would receive no increase; employees with pay rates lower than the recommended adjusted rate would receive an adjustment. For example, organizations that want to recognize years of service might increase each employee’s pay 3 percent for each year of service in the position, up to 10 years. Pay rates for new employees are set at the minimum of the range. Employees with one year in the position would be paid 3 percent above the range minimum. Employees with 10 years in the position would be paid 30 percent above the range minimum.

Although an organization should ideally avoid pay rate compression, doing so is not always fiscally possible. As such, an organization may have to forgo the compression adjustments and look only to bring-to-minimum changes. Or an organization may focus its limited dollars on adjustments for “hot jobs” in year one and changes for other positions in year two of the system. Alternatively, timing any structure-related pay adjustments for after annual merit increases allows the organization to reduce the total program costs. The merit increases fund part or all of the market adjustments.

Step 6: Implementation and Evaluation.

The organization’s salary structure policy will ultimately drive communication and training. See , Compensation Policy.

The new compensation policy should include the following details:

How often the salary structures will be updated. The effective date of the structures. Roles, responsibilities and procedures for updating salary structures, including approval authority, surveys used and frequency of participation, and desired peer comparison list. Which positions will have access to the salary structures, how broad or limited will general access to the system be, and whether the system will be open or closed to employees.

To avoid misunderstandings, thoroughly vetting these issues with stakeholders at the beginning of the project is critical. At project conclusion, document the approved policy during the new salary structure rollout.

Depending on organization policy, HR may be the only one with access to the structures, or all managers and employees may have access. Organizations may operate anywhere along a communications continuum by deciding to entirely restrict employee access to salary ranges, by allowing employees to view their own range or by permitting employees to examine their own range and the next highest range. Managers typically have access to all salary ranges or the salary ranges relevant to their team members. However, some organizations may decide that salary range information is too sensitive and, as a result, restrict it entirely.

Regardless of the target group, understanding the goals of the communication process is important. These goals generally fall into one or more of the following categories:

To ensure understanding. To change perceptions of equity and competitiveness and to garner buy-in. To motivate behavior such as pay for performance, pay for skills and the like.

Tailor each communication based on the target audience and the communication goals. For example, the goal in communicating the new salary structures to the executive team may be to change a perception that a salary structure will bring unwanted bureaucracy or to get buy-in on the list of surveyed peer organizations or selected salary surveys moving forward. Communication to managers who will administer pay using the new structures might simply be to ensure understanding of effective dates, how to access the structures and how to effectively use the structures when hiring new or promoting current employees. Communication to employees who will be paid with the new structure must demonstrate the fairness, equity, competitiveness and link to business strategy.

The organization’s policy regarding access to salary ranges and responsibility for administering pay in the organization drives the training process. Managers expected to effectively administer the pay of their team members need training on compensation philosophy, salary survey sources, how salary ranges are constructed, and how to use the structures when determining appropriate pay for new and existing employees.

To help managers effectively set expectations for employees regarding their position in a pay range over time, explaining the pay/performance continuum is helpful. Under this approach, top performers will reach the maximum of the pay range much faster than average-performing co-workers. Employees who are steady, average performers may never exceed the range midpoint, as their performance matches the market pay rate for someone fully competent in the position. Pay rates for employees with unsatisfactory performance, should they not be exited from the organization, should never progress very far above the range minimum. Figure 4 shows an example of this approach.

If employees can view their own salary range and other salary ranges, they should receive training on understanding the organization’s compensation philosophy, salary survey sources and how salary ranges are constructed.

A comprehensive salary structure policy will go a long way in helping the organization avoid many common pitfalls if it clearly states decision-making authority, roles and responsibilities regarding pay. Two common pitfalls of compensation systems are the following:

Salary structures do not reflect the organization’s compensation philosophy. If midpoints are to reflect the theoretical external-market average competitive rate, make sure they do. Do not let falling compa ratios due to budget restrictions rationalize lower midpoints. Managers must be able to rely on the midpoint to set reasonable hire rates, recommend pay increases and justify the salary range to employees. Salary structures provide no accountability for managers to administer pay. Managers are in the best place to assess performance and equity of team members. Arm the management team members with the tools, information, training and coaching they need, and they will manage pay effectively for the organization.

Like any other program, evaluation is critical to determining the effectiveness of the compensation program. Using metrics such as employee and manager feedback, voluntary employee exit surveys and the cost of compensation in relation to company profitability, the HR professional can assess the compensation program.

Global Issues.

Increasingly, employees operate in a global competitive environment. Compensation plans must take this into account.

Update of Legal Issues.

Legal issues are discussed throughout this article. However, listed below are some legal issues that have arisen, or that have become more salient, since the article was originally published in 2008:

Update of Trends in Compensation.

This article was originally published in 2008 in the middle of what has come to be known as the Great Recession. Although officially over, the Great Recession continues in the minds and experiences of many persons—especially the unemployed—as this article is being updated in early 2013. Some economists predict or fear a “double-dip recession.” This protracted period of economic downturn has had a profound impact on compensation schemes in terms of changes to the law and enforcement as described above, but also in nonlegal aspects of compensation schemes. Many employees today are just glad to have a job, and the competitiveness of compensation plans may be less important than in periods of robust economic growth. At the same time, some employees are quite dissatisfied with their current compensation plans and are looking for opportunities to seek better compensation and benefits plans once the economy turns around.

Referências.

Greene, R. J. (2007, August). Benchmarking may be common practice, but is it sound practice? Workspan.

Grigson, D., Delaney, J., & Jones, R. (2004, October). Market pricing 101—The science and the art. Workspan.

Hay Group, The. (1996). People, performance & pay: Dynamic compensation for changing organizations. New York, NY: Free Press.

Risher, H. (2003, March). Making managers responsible for managing pay. Workspan .

Rubino, J. (1992). Communicating compensation programs: An approach to providing information to employees . Scottsdale, AZ: American Compensation Association.

Schuster, J. R., & Zingheim, P. K. (1992). The new pay: Linking employee and organizational performance. San Francisco, CA: Josey-Bass.

Acknowledgement — The principle author of this article is Rajiv Burman, SPHR, CHRP, CCP, CEB, vice president of human resources for Griffith Laboratories, USA and Canada. In addition to executive HR roles, Mr. Burman’s background includes various management positions in the compensation and benefits field. Other contributors were Therese Allender, CCP, Bob Cartwright, SPHR, Elizabeth C. Larson, SPHR, CCP, Michele M. Lodin, CCP, PHR, Jennifer Loftus, SPHR, CBP, CCP, GRP, and Lane Transou, SPHR. All of the authors are members of SHRM’s Total Rewards Special Expertise Panel.

Measuring for Success: Choose Incentive Metrics Wisely.

Performance is undermined when employees don’t understand the incentive plan or its metrics.

Finding the right mix of incentives necessary to maximize employee performance can be a challenge. However, as employers continue to rely more heavily on variable pay to supplement flat salary-increase budgets, relevant, actionable and easily understandable performance metrics become an even more important element of effective incentive programs.

“As the economy has gotten stronger, the real focus is on trying to reward the best performers,” said Peter Gundy, managing director with Towers Watson in Stamford, Conn. To ensure that employers are indeed rewarding those employees, they must make sure that they are measuring the right types of performance. “Metrics are critically important not only to an effective incentive plan but also to moving the business forward,” said Gundy.

Performance metrics are a key way for employers to communicate what’s important to their employees. “With an incentive plan, you get what you pay for,” said Ken Abosch, compensation practice leader for Aon Hewitt in Lincolnshire, Ill. “If you are measuring the wrong things, people will focus on those things. They do what you ask them to do.”

‘With an incentive plan, you get what you pay for.’

Finding the Right Metrics.

Performance metrics can vary widely by industry, company, position and other factors. Finding the right set is a complex exercise. Here are some do’s and don’ts to help guide the process.

• Identify business strategy and goals.

Just what those outcomes are, however, can change over time. “Over the last several years, a lot of employers placed a significant amount of emphasis on profitability and cost control,” said Gundy. “Now as the economy has recovered and gotten stronger, there has been a push for more top-line, profitable growth with goals balanced between sales, revenue growth and profitability.”

Translating those goals into effective employee performance metrics is crucial. “Clear measures are probably the most important determiner of success for an incentive plan,” said Abosch. He urged organizations to select incentive plan performance measures based on what really drives their businesses. From there, they can focus on forging a strategic link between those drivers and the performance metrics in the incentive plan.

For example, an organization whose success is based on operational excellence must develop metrics so that every employee is focused on what drives operational excellence for that organization, such as timeliness, building efficiencies and streamlining operations.

According to Towers Watson’s 2014 Global Talent Management and Rewards Study , only 45 percent of employees surveyed think managers are effective at making sure pay decisions reflect employee performance. Just over half (52 percent) say their companies do a good job of explaining pay programs, and less than half see a clear link between their pay and their performance.

Gundy notes that the lion’s share of issues occur when employees don’t understand the incentive plan or its metrics and when managers are not communicating or using the plan effectively.

• Make sure employees can control their outcomes.

For example, the speed at which an accounting staff member can collect on accounts receivable has a significant impact on the company’s available cash. That level of clarity must also exist when it comes to developing metrics tied to other goals, like sales growth and earnings per share.

It is important to strike the right balance between having too few and too many metrics. The “just right” combination of metrics can guide performance without overwhelming employees or diluting their efforts and focus on too many priorities. “Some organizations only care about company measures, and they do not cascade anything below that,” said Abosch. “In those cases, the total focus might be on, for example, the number of packages delivered with everyone measured based on that goal.”

Even when employers break down high-level goals to the individual level, they must take care not to overdo it. Abosch recalls one company that had well over 100 metrics for its incentives. “Such a plan is worthless in terms of creating focus,” he said. “You want to make sure you are not diluting the impact or losing focus by using too many metrics.”

Three to five metrics seems to be the sweet spot for many organizations. “You don’t want to have a plan that has 12 different measures,” said Gundy. “Such a plan loses its effectiveness.” Employers can guide employee performance even more by weighting each metric according to its importance.

Organizations and their goals and priorities change over time, and so should performance metrics. “Employers should at least validate the measures every year,” said Abosch. “The business environment is moving quickly. Employers need to assess whether they are still using the right metrics.”

Some employers revisit metrics on an annual basis as part of the annual business planning cycle, while others do so at some other interval. However, any major shift in strategy, organizational structure or markets may require an off-cycle look at metrics. The key is to validate those metrics to ensure that they, and the incentive plan, are still driving the right outcomes and behaviors.

Continuous Improvement.

Ultimately, any incentive plan needs to drive better outcomes in order to pay for itself via performance improvements. Having the right metrics is just part of that equation. Everything from identifying the right goals to implementing and communicating the plan will impact an incentive plan’s success. It is important for employers to get them right.

Incentive Pay Metrics: The Long and the Short of It.

Long-term incentives are generally less complex than short-term plans.

Income statement-related performance metrics (revenue, operating income) are typical of short-term incentive (STI) plans, whereas market-related metrics (total shareholder return, stock price appreciation) are relatively rare in STI plans but common in long-term incentive (LTI) plans, reveals Mercer’s latest analysis of compensation for executives at companies in the Standard & Poor’s 100 Index.

The analysis finds that LTI plans are generally less complex than STI plans at the same large U. S. companies, using fewer performance metrics and incorporating fewer special conditions.

Mercer analyzed last year’s proxy statements for the S&P 100 as comprised on Jan. 1, 2014.

The most common STI metrics were:

• Profit-based (36 percent of S&P 100 companies use earnings per share; 49 percent use other profit measures).

The typical weighting for income statement-derived metrics such as revenue, operating income, pretax income or net income in STI plans is 55 percent, followed by earnings per share at 40 percent.

The most common LTI metrics were:

• Total shareholder return or stock appreciation (used by 55 percent of the S&P 100).

In LTI plans, the most common metrics—total shareholder return/stock appreciation, return on assets/return on equity, earnings per share, and asset/equity growth—are all typically weighted at 50 percent.

“While nonfinancial metrics like operational efficiency, customer satisfaction, workplace diversity and milestone objectives commonly have lower weightings than financial measures, they can play an important role in signaling the importance an organization places on the different aspects of its operations,” said Peter Schloth, a principal with Mercer specializing in executive compensation, in a commentary accompanying the findings. “For example, it’s common to see safety and environmental metrics at energy companies—and investors are generally supportive of such measures, recognizing the shareholder value that can be destroyed if an organization’s safety or environmental performance is poor.”

A Complementary Mix.

“STI and LTI programs need to complement each other,” said Schloth. “Properly designed LTI programs should motivate executives to develop strategies and policies to achieve long-term growth and increase the value of the organization. Effective STI programs should motivate executives to execute on strategies and policies, and make good operating decisions to maximize performance over the course of a year.”

For STI plans, the majority of awards (70 percent) use pre-established targets to evaluate performance, with many compensation committees opting for income statement-based metrics to assess annual performance. LTI awards are more often tied to stock market returns. “This aligns with companies’ goals to grow revenue and expand profit margins over the short term and create market value for their shareholders over the long term,” said Ted Jarvis, Mercer’s global director of executive compensation data, research and publications, in the same commentary.

Number of Metrics.

More than 60 percent of companies in the S&P 100 use three performance metrics or less in their STI plans, while 90 percent use three or less in their LTI plans.

“Committees are hesitant to micromanage executives with a lot of performance measures,” said Jarvis. “Metrics and weightings tend to be identical for LTI grantees to ensure alignment within the executive team on the same long-term goals. Some companies take this approach for their STI program, while others tailor metrics and weightings to account for differences in responsibilities among executives.”

Added Schloth, “Too many metrics could diminish an executive’s focus on the most important ones.”

Multiyear Cycles, Annual Awards.

The analysis shows that 85 percent of LTI plans use equity shares or units to deliver awards rather than cash. Moreover, three-year cycles are the most prevalent period of time over which performance is evaluated, representing 84 percent of awards.

Even so, most organizations grant LTI performance shares or units annually (based on the just-ended multiyear cycle). According to Schloth, this use of overlapping cycles serves a purpose. “With annual awards, an executive’s rewards are tied to three [annual] performance cycles at all times, which creates a strong motivational and retention device.”

Aligning Total Rewards with Talent Management Top Global HR Priority.

The top challenge of the next three years for HR leadership across the globe centers on talent—finding it, motivating it and keeping it.

The 2014 Global Top Five Total Rewards Priorities Survey report conducted by Deloitte, the International Society of Certified Employee Benefit Specialists, and the International Foundation of Employee Benefit Plans found talent shortages, combined with managing a multigenerational workforce, pointing to the need for more effective and adaptable talent strategies and rewards programs.

Conducted during December 2013, the survey represents employers in 22 countries around the world. Two hundred and twenty global HR professionals ranked the following as the top five priorities for 2014:

Aligning total rewards with business strategy by attracting, motivating and retaining employees. Reducing the costs of providing health care and other noncash benefits to employees. Motivating staff when pay increases are flat or nonexistent. Demonstrating appropriate return on investment for reward expenditures. Creating a rewards program that reflects the culture and goals of the organization.

Keeping with last year’s results, the finding and retaining of qualified talent outpaced all other choices as the top challenge, according to 35 percent of respondents. When breaking the responses down by region, most respondents listed it as their most significant challenge—38 percent of respondents in the Americas, and 30 percent in the other regions surveyed (Europe, Middle East and Asia-Pacific).

The rising cost of total rewards was the second largest concern overall (16 percent) and in the Americas (19 percent). Respondents from Europe, the Middle East and Asia-Pacific continue to find difficulty with providing meaningful pay increases in a cost-reduction environment and ranked this as their second most significant concern (20 percent).

“These findings clearly point to the need for effective talent strategies as employers struggle to fill technical and skilled jobs during a period of stubbornly high unemployment. While the alignment of rewards with overall talent management was the top challenge across all geographies, the approaches to achieve this goal truly reflected the economic, cultural and political nuances of the local regions,” said Jason Flynn, principal, Deloitte Consulting LLP, in the report.

For example, the Americas region placed more emphasis on the cost of providing benefits to employees. “In the United States, this comes as no surprise, as the Affordable Care Act has most, if not all, employers focused on health care benefits and costs. There is a great deal of uncertainty around health care benefits and the role it could play on the incentive structure for talent in the United States,” said Flynn.

Employers in the other surveyed regions ranked compensation concerns as a high priority, reflecting the economic turmoil across Europe in recent years, as well as the general difficulty of replacing low performers in organizations, according to the report. In addition, the regulatory environments in these regions generally decrease differentiation of benefits across companies, making compensation a more critical differentiator in competing for talent.

Preventive Health Programs Top Strategic Action.

A large percentage of respondents in all regions (43 percent) said they are or would increase health and well-being initiatives; respondents in the Americas are more likely to focus on health initiatives, as 50 percent said they were modifying these programs. “This is a new focus as organizations attempt to reap the longer-term cost savings and benefits from a healthier working population,” said Flynn. “Employers hope that improved health will lower health care costs, improve productivity and enhance job satisfaction. However, the success of these programs is difficult to measure in the short-term.”

In line with prior years, defining and mixing rewards components and redesigning overall rewards strategy was the top action for Europe, the Middle East and Asia-Pacific. “With the focus on attracting and retaining qualified talent, employers should regularly assess their programs to determine whether they are hitting the value target of employees,” said Flynn. “This value must then be balanced against the rewards costs, all within the context of the population’s changing needs and broader organizational strategy.”

Increasing employee communications and education was rated the top planned change to total rewards programs globally, with the Americas (52 percent) and the other surveyed regions (45 percent) responding with nearly equal emphasis. In Europe, this may relate to cultural or statutory requirements to communicate with employees through works councils or other employment bodies. In the Americas, employees may have higher expectations of employers to be transparent and openly share key organizational information.

When asked to identify which programs would receive more emphasis in the coming year, respondents indicated that wellness/disease management and compensation programs will be the focus. This is consistent with responses elsewhere in the survey indicating the growing emphasis on wellness programs.

Varied Rewards for Intergenerational Workforces.

Organizations across the globe face significantly different generational workforce challenges. While the workforce populations in the U. S. and most of Europe are aging, India and Brazil are experiencing an influx of young workers. The survey indicated that 60 percent of employers overall somewhat agree or strongly agree that their organization’s leadership team understands the total rewards perspectives and values of the different generations in their workforce, but only 37 percent of employers globally would consider a menu-driven reward mix that allows employees from different generations to build a total rewards package to fit their particular needs.

“Organizations have come to face the reality that their workforces are intergenerational and what may work for one generation in the total rewards program doesn’t necessarily work for the others,” said Yon-Loon Chen, senior manager, Deloitte Consulting and co-author of the report. “It will be imperative for organizations to have a flexible total rewards program that will support all its employees as they progress through their careers.”

Roy Maurer is an online editor/manager for SHRM.

Designing Global Compensation Systems.

An international assignment compensation system has to finely balance adequately rewarding and motivating expatriates while keeping costs under control for corporate headquarters. The cost of an expatriate assignment can top $1 million over the course of a typical three-year engagement, according to the National Foreign Trade Council . That figure includes salary, benefits, relocation, training and other support before, during and after the assignment. The amount rises when it is necessary to pay allowances and other forms of compensation for hardship conditions when an employee is working in volatile economic or political environments or remote locations.

Because of the enormous investment, developing a comprehensive global compensation system for expatriates is one of the most critical challenges facing global human resource management.

Developing a Compensation Philosophy and Strategy.

Companies with multinational operations need to develop compensation plans for employees that are in line with their global business strategy. Companies that articulate a clear global pay philosophy and develop corresponding compensation programs are best positioned to effectively execute their strategy. An effective global compensation strategy creates consistency in pay management and facilitates global employee mobility.

Although multinational employers are striving to globalize their compensation practices, fewer than half have principally global pay programs, according to a Mercer survey on global compensation strategies. The survey included responses from 168 multinational companies based primarily in the United States and Europe. Spanning a variety of industries, these companies had an average of 20,000 employees and revenues between $1 billion and $5 billion. The survey found that just 45 percent of participating organizations take an almost exclusively global approach to compensation planning and design. The majority still take either a local approach (39 percent) or a regional approach (16 percent).

Approaches to Global Compensation.

International assignment compensation has many moving parts and is difficult to standardize. Many factors will affect the compensation of a particular expatriate, including assignment type and length, location, family needs (if any), and benefits. The main compensation items for expatriates involve base pay, cost-of-living adjustments, housing allowances, home leave, education assistance for dependents and premium pay.

Additionally, according to a 2010 Hewitt Associates (now Aon Hewitt) survey of more than 6,000 large companies in 46 countries, employers are increasing their use of performance-based pay and are moving toward a more customized incentive pay plan approach.

Compensation Plan Elements.

A global compensation plan includes elements typical of any rewards strategy along with a few extra incentives and allowances, depending on the host country.

When an employee accepts an international assignment, it is up to the employer to determine the base rate of pay (referred to as the base salary). The base salary is normally related to pay ranges in the home country, which then may be adjusted based on local variances (i. e., fluctuations in the economy). Companies take one of the following approaches to establish base salaries for expatriates:

The home-country-based approach. The objective of a home-based compensation program is to equalize the employee to a standard of living enjoyed in his or her home country. The 2010 Cartus Global Mobility Policy & Practices Survey: Navigating a Challenging Landscape (PDF) polled 196 HR professionals in global companies and found that 56 percent of long-term assignments and 70 percent of short-term assignments use a home country pay structure. Under this system, the employee’s base salary is broken down into four general categories: taxes, housing, goods and services, and discretionary income. The host-country-based approach. With this approach, the expatriate employee’s compensation is based on local national rates. Many companies continue to cover the employee in its defined contribution or defined benefit pension schemes and provide housing allowances. Only 18 percent of long-term assignments and 4 percent of short-term assignments base pay on local rates, according to the Cartus survey. The headquarters-based approach. This approach assumes that all assignees, regardless of location, are in one country (i. e., a U. S. company pays all assignees a U. S.-based salary, regardless of geography). Cartus found that a small percentage of companies use headquarters-based approaches for long-term assignments (8 percent) and short-term assignments (4 percent). Balance sheet approach. In this scenario, the compensation is calculated using the home-country-based approach with all allowances, deductions and reimbursements. After the net salary has been determined, it is then converted to the host country’s currency. Since one of the primary goals of an international compensation management program is to maintain the expatriate’s current standard of living, developing an equitable and functional compensation plan that combines balance and flexibility is extremely challenging for multinational companies. To this end, many companies adopt a balance sheet approach. This approach guarantees that employees in international assignments maintain the same standard of living they enjoyed in their home country. A work sheet lists the costs of major expenses in the home and host countries, and any differences are used to increase or decrease the compensation to keep it in balance.

More companies are also allowing expatriates to split payment of their salaries between the host country’s and the home country’s currencies. The expatriate receives money in the host country’s currency for expenses but keeps a percentage of it in the home country currency to safeguard against wild currency fluctuations in either country. The Cartus survey found that 24 percent of long-term assignments were paid with split pay, an increase from 22 percent in 2007. The most common ratio is 60 percent in host currency and 40 percent in home currency. Some companies select the ratio, but more often the expatriate can pick his or her own percentage split, based on recommendations from cost-of-living experts. The company must also determine how often to let the expatriate change the ratio. A frequent change, such as monthly, can benefit the expatriate but wreak havoc on HR’s administrative systems, but once a year may not be enough in countries with unstable currencies.

The globalization of business has increased the use of variable and incentive pay around the world. But some cultures don’t readily accept the practice of linking pay to individual or group performance. Other roadblocks to pay for performance include financial (not enough funding of the pool), target setting (defining performance parameters) and pay equity. Yet when it is done right, pay for performance effectively allocates limited rewards and retains top performers. As such, variable pay has become an increasingly important compensation element in many countries.

Variable pay plans generally fall into one of two categories:

Short-term incentive plans are usually annual plans that link awards based on meeting individual or group performance criteria and objectives. Unlike long-term plans, these incentive pay plans provide for the payout to be awarded yearly. Long-term incentive plans, on the other hand, can vary in length from three to five years. These plans typically include equity-based incentives, such as stock options, restricted share grants and other types of equity-based plans like phantom stocks or stock appreciation rights. Awards are closely linked to the achievement of company goals and objectives over the three - to five-year period.

Participation and eligibility for each type of plan, as well as the level of incentives and average payouts, vary greatly among different companies, industries and countries around the world.

Premiums and allowances.

Premiums and allowances are added to the base salary so expatriate employees can maintain their standard of living. Those add-ons are removed when the employee repatriates. Some types of premiums and allowances are as follows:

Hardship and hazard/danger pay. Employers sometimes need to send employees on assignments to host countries where conditions are difficult or hazardous (i. e., remote locations or countries with high rates of violence). As a result, a hardship allowance may be granted as an additional incentive to compensate employees for accepting assignments in less than desirable countries. Premiums typically range from 10 percent to 50 percent of base pay, depending on the severity of the hardship. For assignments in developing countries that have a history of violence or are experiencing political unrest, expatriates will often receive some form of hazard pay, such as an additional 25 percent of their base salary. See , Managing Expats in Developing Countries . Cost-of-living adjustments. A cost-of-living adjustment is an increase or decrease of an expatriate employee’s pay in response to fluctuations in the economy, such as inflation or deflation. To prevent attrition of the global employee’s purchasing power, companies often raise the employee’s base salary to keep up with inflation. When price levels drop, companies may also decrease the base salary accordingly. See , Using ‘Cost of Living Adjustments’ to Compensate Expats . Education assistance. Education assistance for dependents of expatriate employees varies based on conditions in the host country. Assistance will usually not be provided if local educational institutions are deemed adequate. When there are substandard conditions in the education system of the host country, a variety of benefits may be utilized, such as the employer operating a school in the foreign country; paying for dependents’ educational expenses, including room and board, to attend schools in the United States; or providing an allowance for attendance at private schools in either the United States or the host country. Other employers may simply choose to pay employees a specified amount (stipend) considered necessary for schooling at the nearest adequate school, and the employees make up any difference to send their dependents to an institution of their choice. Housing assistance. Assistance for housing is usually provided either in the form of free company-owned housing or via a housing allowance that is typically equal to the difference in housing costs between the home and host countries or based on a specified percentage of an employee’s base salary. Housing allowance rates are usually calculated based on either a single person or a two-person household. For employees with larger families living with them, an additional supplement that typically ranges from 10 to 30 percent of the two-person allowance may also be provided. See , Housing Conditions in Hardship Locations . Home leave. The objective of home leave policies is to give the assignee and his or her family the opportunity to maintain personal and business relationships and remain abreast of any economic, political, social or cultural changes in the home country. Although home leave policies vary among multinational corporations, most policies grant leave based on the employee’s level within the organizational structure. Executives, managers and more senior-level professionals are most often granted home leave once a year, or once every other year for a duration of up to four weeks, and lower-level employees may be allowed only a single visit during the course of their assignment. Companies that provide home leave allowances generally purchase or reimburse the employee for any travel-related expenses, such as airline tickets for the employee, spouse or partner and any dependent children younger than college age.

Global benefits for expatriates can be complicated for HR professionals to navigate, given the myriad national health care and pension systems and the laws governing foreign residents.

Health care coverage can pose significant challenges for expatriate employees because not all U. S. health care plans provide coverage for employees residing abroad. For this reason, the practice of providing health care benefits varies greatly among multinational companies. Multinational companies can provide coverage to employees in one of the following ways:

Include the assignee in an international health care plan. Continue coverage under the U. S. health care plan. Provide coverage for the employee through a host country health care plan.

Regardless of the compensation approach a multinational company chooses to adopt, it is a common practice for most companies to provide assignees with the same level of Social Security and pension plan benefit coverage, without any interruption in service, as enjoyed by other employees in the home country location.

Some countries require expatriate employees to participate in their social security or other government welfare benefit schemes. In this case, many companies will usually provide for reimbursement of any payments made to the host country’s government scheme.

Since approximately half of all U. S. marriages are dual-earner partnerships, when dealing with international assignments this can pose significant challenges for the trailing spouse or partner, the expatriate employee and the sponsoring company.

Trailing spouses face many challenges to finding suitable employment in the host country, including but not limited to language and legal barriers as well as differences in educational, professional or licensing requirements.

Assistance with job searches, visas or work permits, career and educational counseling, and resume writing are just a few examples of the types of assistance a multinational company can provide to spouses or partners of transferring employees. A less common approach is to offer a financial sum to spouses of expatriate employees for any loss of income resulting from the relocation.

Other add-ons that are less commonly offered but can significantly ease expatriate package negotiations include cultural competence training , language training and repatriation assistance.

The purpose of these programs is to enhance the knowledge and awareness about the employee’s new location and the cultural differences affecting communication, behaviors and notions. Training programs will typically last a few days; however, for assignments to more remote or difficult locations, programs may also include security training that lasts for a longer period of time. The length and type of training should be directly related to the perceived level of assignment difficulty or differences in the assignment country.

Training may be conducted either as an individual program for a single transferring employee and his or her family or as a group program when there are a number of employees being transferred to the same location within the same general time frame. However, it is advisable when conducting group training to also provide individuals with some one-on-one time with the trainer to discuss any specific issues related to the employee’s job responsibilities or to address any other more personal concerns or issues.

The inability to communicate can create a sense of vulnerability and loss of control. A basic knowledge of the language empowers expatriate employees to build critical relationships with host country nationals. Some jurisdictions require that employee communications be in the local language.

Most companies provide some form of language training for expatriate employees assigned to countries where they are nonnative speakers. Training program options include the following:

Intensive total immersion courses. Cross-cultural training with integrated language instruction. Private tutoring or coaching. Group language classes. Use of language software or audiovisual applications.

Expatriate pay considerations don’t end when the assignment ends. Pay can be a significant factor in making it difficult for a person to be repatriated . Often those returning home realize they have been making considerably more money with a lower cost of living in the host country; returning to the home country means a cut in pay and standard of living. If the foreign compensation package is disproportionate, an expatriate can suffer financial issues upon repatriation or reassignment to the home or other foreign country. Expatriate families and employees benefit from repatriation training to help readjust to living in the home country and returning to the original work environment. The length of the training often depends on the length of the assignment and the ages of the employees’ children.

Similarly, if the leading motivator of the expatriate employee is the long-term career aspect, the company needs to provide a challenging assignment upon return to the home office or shortly thereafter. If this is not feasible, communication about future plans for such an assignment and the timing should come from a mentor or a member of the senior management team. Otherwise, the company may risk losing its entire investment to turnover of returning expatriate employees.

Compensating Third-Country Nationals.

Third-country nationals (TCNs) are employees who are not from the home country or the host country. TCNs have traditionally been technical or professional employees hired for short-term employment and are often considered international freelance employees.

In the case of TCNs, multinational companies have one of three options regarding compensation:

Pay the TCNs as if they are local nationals. Treat them as any other U. S. citizen would be treated. Establish an arrangement based primarily on the third country’s existing pay ranges.

The option a company chooses will depend primarily on how these employees were hired into the organization or how they obtained the international assignment. The most common practices include the following:

If the company is hiring locally in the host country, a TCN who applies for a job (including a professional or managerial position) may be assumed to be applying under the terms being offered. In this case, unless the TCN was specifically targeted and individually recruited for the position, he or she would most likely be offered the same compensation package provided to other local nationals. If a TCN who is already employed by the company transferred or reassigned from another country, the compensation arrangement will usually depend on the individual’s particular career pattern. TCNs who occupy positions that involve regular transfers or reassignments are most likely to be compensated on the same basis as any one of their U. S. counterparts who are also subject to frequent transfers. This approach, however, may require that these employees be paid based on U. S. salary ranges that are adjusted to support differences in locations each time a transfer occurs.

Benchmarking Human Capital Metrics.

Aligning Human Capital Metrics to Business Strategy.

The importance of human capital is increasing as the United States and other industrialized nations rapidly shift to a knowledge economy. Metrics of human capital include not only HR practices but also other work practices and people management strategies. The distinction is that human capital can extend beyond the HR function to include the organization’s total strategy. Because organizations see human capital as an asset to drive value and optimize the firm’s performance, strategies that align human capital practices to support performance are in demand. Yet showing which HR practices improve business performance can be difficult. Concrete measures to evaluate the effectiveness of these practices are more elusive. The SHRM Workforce Analytics Model addresses these challenges through a process that also builds HR credibility with stakeholders in the organization.

The SHRM Workforce Analytics Model provides a framework for HR professionals to develop, build and implement human capital metrics in their organizations. The model consists of four phases:

Assess and plan. Link and align. Identify and build. Implement and execute.

During the initial phase, HR must acquire knowledge of the organization’s strategy, plans and goals. The subsequent phases depend on HR professionals having a firm understanding of these areas. Success in this initiative often depends on support and buy-in from colleagues outside of HR. Therefore, HR professionals should identify a metrics team, similar to a steering committee, of three or more individuals. The more employees in your organization, the more members you will need on your steering committee. Large organizations may have 20 or more individuals on their steering committee; small organizations may have only three. To build credibility with this project, individuals from different departments, such as finance and operations, should be on your teams.

The central question in this phase is what impact(s) does the business strategy have on the workforce? When this question is answered, it is possible to identify workforce drivers that support the business strategy. To illustrate, if the business strategy of a retail operation is to open 20 new stores in a 12-month period, the potential workforce drivers would include the need to hire additional retail staff, provide training for store managers and develop onboarding practices for new hires.

During this phase, HR professionals need to determine which metrics and analytics support the workforce drivers for each HR function. Using the previous retail example, HR analytics that support hiring additional retail staff would include the time required to fill positions, cost per hire, quality of hire and number of requisitions per recruiter. Such data help HR professionals determine how quickly they can fill positions for the stores being opened, the number of recruiters they may need to achieve the hiring goals and the level of investment for recruiting that may be required. All of these metrics support the business strategy.

This phase will specify how often analytics will be delivered and to whom. HR practitioners should include a feedback loop to receive comments from internal customers to improve the quality of data that is being distributed.

Importance of Benchmarking.

Benchmarking is rapidly becoming an indispensable tool for HR professionals. It is a mechanism for measuring processes, practices and results against the competition to improve performance. If it is used wisely, it can transform an organization’s HR and people management strategies by showing how human capital practices influence the organization’s performance.

For example, making changes to existing compensation practices may be difficult, unless objective benchmarking data are available that can support modifications. If, for instance, an HR professional wants to alter an organization’s long-standing practice of not offering employee bonus plans, benchmarking data can help make the case.

Interpreting Benchmarking Data.

As you work with benchmarking data, realize that the business strategy, organizational culture, leadership behaviors and industry pressures are just a few of the many factors that drive various human capital measures. For example, an industry that generally hires unskilled labor, such as manufacturing, may have a lower cost per hire than a high-tech industry that hires specialized knowledge workers. This is because organizations in high-tech industries may need to spend more to locate qualified staff and to relocate out-of-town candidates.

When comparing their own data against other organizations’ data, practitioners should keep the following issues in mind.

Understand the significance of deviations.

A deviation between your figure (for any human capital measure) and the comparative figure is not necessarily favorable or unfavorable; it is merely an indication that additional analyses may be needed. Human capital measures that relate more closely to the context of your organization’s industry, revenue size, geographic location and number of employees are more descriptive and meaningful than generic information, such as all industries combined. The larger the discrepancy between your figure and the comparative figure, the greater the need for additional scrutiny.

If you determine that potentially serious deviations do exist, you may want to calculate the same human capital measure for your organization over the past several years to identify any trends.

Use benchmarks as a tool, not as a rule.

When comparing benchmarking data, the information should be used as a tool for decision-making rather than an absolute standard. Because organizations differ in their overall business strategy, location, size and other factors, any two companies can be well managed, yet some of their human capital measures may differ greatly. No decision should be based solely on the results of any one study.

Definitions and Calculations of Key HR Metrics.

The following are some examples of HR metrics in various categories.

This category of metrics includes high-level, organizational information.

FTE. FTE is an abbreviation for full-time equivalent, which represents the total labor hours invested. To convert part-time staff into FTEs, divide the total number of hours worked by part-time employees during the work year by the total number of hours in the work year (e. g., if the average workweek is 37.5 hours, the total number of hours in a work year would be 37.5 hours per week x 52 weeks = 1,950 hours). Converting the number of employees to FTEs provides a more accurate understanding of the level of effort being applied in an organization. For example, if two employees are job sharing, they constitute one FTE.

Revenue. Revenue is the amount of money that an organization actually receives from its activities, mostly from sales of products or services to customers. To investors, revenue is less important than profit, or income, which is the amount of money the organization has earned after deducting all of its expenses.

Revenue per FTE. Revenue per FTE is the total amount of revenue received during an organization’s fiscal year divided by the number of FTEs. This ratio conceptually links the time and effort associated with the firm’s human capital to its revenue output. An increase in revenue per FTE ratio indicates greater efficiency and productivity because more output is being produced per FTE. If the ratio decreases, it indicates less efficiency and productivity.

Net income before taxes. Net income before taxes is the amount of revenue received during the fiscal year minus the operating expenses during the fiscal year.

Net income before taxes per FTE. Net income before taxes per FTE is a measure of efficiency. Take the net income before taxes, which is the difference between gross revenue and expenses, and divide the outcome by the number of FTEs. Unlike revenue per FTE, which has only one factor (revenue), net income per FTE comprises two factors. This metric is most helpful when it is considered over a long period of time.

This category of metrics includes various measures of HR staffing.

Total HR staff. The total HR staff is the actual number of employees supporting the HR function for an organization or level within the organization.

Percentage of HR staff in supervisory roles. The percentage of HR staff in supervisory roles is calculated by taking the number of HR FTEs in supervisory positions and dividing that by the total number of HR FTEs. Because positions in this category supervise others, they are often called supervisor, manager, director or above.

Percentage of HR staff in professional or technical roles. The percentage of HR staff in professional or technical roles is calculated by taking the number of HR FTEs in professional or technical positions and dividing that by the total number of HR FTEs. Positions in this category are generally exempt and do not supervise others. Titles include recruiter, benefits administrator and HR generalist.

Percentage of HR staff in administrative support roles. The percentage of HR staff in administrative support roles is calculated by taking the number of HR FTEs in administrative support positions and dividing that by the total number of HR FTEs. Often, but not always, positions in this category are nonexempt. Titles include coordinator and assistant.

Reporting structure for the head of HR. The reporting structure for the head of HR indicates to which person within the organization the head of HR reports. Occasionally in very small companies, the head of HR may report to the CFO or head of an operating unit. In larger organizations, the head of HR usually reports to the president or CEO.

Expectations for HR hiring. The expectations for HR hiring indicate the types of HR positions that organizations anticipate hiring in a given time frame.

This category of metrics includes various measures of HR expenses.

HR expenses. Human resource expenses represent HR’s total costs for a given fiscal year.

HR expense to operating expense ratio. The HR expense to operating expense ratio is calculated by dividing the organization’s total HR expenses by the operating expenses for a given fiscal year. This ratio depicts the amount of HR expenses as a percentage of total operating expenses, which is an indication of the number of dollars an organization invests in its HR function.

HR expense to FTE ratio. The HR expense to FTE ratio represents the number of human resource dollars spent per FTE in the organization. It is calculated by taking the HR expenses for a given fiscal year and dividing that by the number of FTEs in the organization.

This category of metrics includes various measures of employee compensation.

Annual salary increase. Annual salary increase is the percentage of increase in salaries that an organization expects to provide to its employees in a given fiscal year.

Salaries as a percentage of operating expense. Salaries as a percentage of operating expense is calculated by dividing the total amount of employee salaries by the operating expense for a given fiscal year.

Target bonus for nonexecutives. The target bonus for nonexecutives represents the average percentage of base pay that is targeted to be paid out in cash to nonexecutive staff during a given year.

Target bonus for executives. The target bonus for executives represents the average percentage of base pay that is targeted to be paid out in cash to executive staff during a given year.

This category of metrics includes various measures related to tuition reimbursement and employee education.

Maximum reimbursement allowed for tuition and education expenses per year. The maximum reimbursement allowed for tuition and education expenses per year is the average amount in dollars per employee the organization paid for tuition and education. These expenses do not include training expenses for seminars and so forth that are not part of a college - or university-level undergraduate or graduate course.

Percentage of employees participating in tuition or education reimbursement programs. The percentage of employees participating in tuition or education reimbursement programs does not include reimbursements for seminars and so forth that are not part of a college - or university-level undergraduate or graduate course.

This category of metrics includes various measures associated with staffing and talent management.

Number of positions filled. The number of positions filled reflects the number of open positions for which individuals were hired during the fiscal year. Open positions could be filled either by internal or external candidates. “Hired” means the individual accepted the position during the fiscal year but may not have started until the following year. This situation generally occurs with candidates who accepted positions during the last month of the organization’s fiscal year.

Time to fill. The time to fill represents the number of days from when the job requisition was opened until a candidate accepted an offer. This number is calculated using calendar days, including weekends and holidays.

Cost per hire. The cost per hire represents the costs involved in hiring a new employee. These costs include the sum of advertising fees, agency fees, employee referrals, travel costs of applicants and staff, relocation costs, and recruiter pay and benefits divided by the number of hires.

Annual voluntary turnover rate. The annual voluntary turnover rate is the rate at which employees enter and voluntarily leave an organization in a given fiscal year. To calculate the annual voluntary turnover rate, first calculate the voluntary turnover for each month by dividing the number of voluntary separations during the month by the average number of employees during the month, then multiply by 100. The annual voluntary turnover rate is then calculated by adding the 12 monthly voluntary turnover percentages.

Annual involuntary turnover rate. The annual involuntary turnover rate is the rate at which employees enter and involuntarily leave an organization in a given fiscal year. Involuntary terminations occur, for example, when the organization asks the employee to leave the company. They are usually a result of poor performance, layoffs or other reasons. To calculate the annual involuntary turnover rate, first calculate the involuntary turnover rate for each month by dividing the number of involuntary separations during each month by the average number of employees during the month, then multiply by 100. The annual involuntary turnover rate is then calculated by adding the 12 monthly involuntary turnover percentages.

Retention Compensation Plans—Please Stay!

One component of executive and senior leadership compensation that has seen significant growth over the last several years is the implementation of retention compensation. On its face, retention compensation strategies are another form of long-term deferred compensation; but it is different in that retention rewards are typically in place because of a specific event or set of circumstances triggering the need.

What is Retention Compensation?

The concept is simple—the organization provides a payment to a key person which is tied to continued employment for a specific period of time. The need for retention incentives typically result from:

• An anticipated or pending sale of the business/organization.

• A significant reorganization and/or restructuring.

• The planned succession of new leadership into the business/organization.

The most common use is where there is an anticipated transaction that requires leadership and key talent continuity in order to maintain the ongoing value of the enterprise. It can be critical to ensure that key talent is retained, operating functions are held intact and that relationships are maintained during these times of transition. We have seen growth in the use of retention arrangements within the health care industry as a result of the recent and expected future consolidation of hospitals and health systems.

If the goal is to merely retain someone without regard to performance or engagement, they can be successful. However, if it is the only vehicle in place, such plans can be merely giveaways for tenure. One key question—does the bonus payment really keep them in place? By itself, our view is that the retention bonus is typically not large enough for key talent to stay in place—if the opportunity is great enough, the loss of bonus will not be an issue.

We have to remember that the key to the employment relationship is engagement so that the financial reward alone will usually not be enough. A recent study by Hay points out that 20 percent of employees plan to look for a new job in two years and another 20 percent plan on definitely leaving their current positions in at least five years. As a result of the more tenuous nature of the employment relationship, turnover has become a more prominent aspect of organizational life. We would suggest that as with all components of rewards, pure dollars are never the ultimate driver.

Both Towers Watson and WorldatWork have surveyed large numbers of domestic and international organizations to understand what makes a retention strategy successful when tied to a transaction. Some findings include:

• Select candidates who are really key talent — those who could really impact value in the short term. That means that the selection might not be an entire class of leaders but rather individuals from critical areas where interruption through turnover could be costly.

• Identify these candidates as early in the process as possible and communicate clearly the parameters of the program. It is important that the leaders of the acquiring organization personally contact these individuals as soon as practicable.

• Recognize that the actual bonus itself is not enough — emotional connections to the new organization need to be established early in the transaction. Just as important will be early participation in task forces related to integration and constant contact with the new decision makers.

• Ensure current compensation and incentive levels reflect high performance expectations. It may be appropriate to institute pay adjustments and bonus target increases as an alternative or in conjunction with some ultimate service-based award tied to a transaction or event.

• Link the ultimate award to an appropriate time period. While it is important for the transaction to be completed, the real goal is a successful integration of the new entity. In our view, the real reward should occur 12 months or so after the actual transaction. The real value of the combined entity will be measurable once the combination occurs, not at the time of closing. It may also be appropriate to have performance metrics as part of the retention bonus. For example, 50 percent of the award could be based solely on continued service but the other half based on pre-determined metrics tied to the integration.

Estimates of normal turnover range from 50 percent to 200 percent of salary depending upon the type and level of position. Where key talent leaves during a period of business and/or leadership transition, these costs multiply. Putting together a strategy that addresses real engagement with the organization will include a thoughtful mix of financial and non-financial incentives.

Rob Rogers is a principal at consulting firm Findley Davies, where he manages a multitude of compensation and benefits projects. Prior to joining the firm, he was vice president of human resources for a large bank holding company. He is a frequent speaker on compensation and benefits trends. © 2015 Findley Davies, Inc. All Rights Reserved.

Common financial terms.

When reading about insurance and financial products, you may encounter financial terminology and acronyms that you aren’t familiar with. We’re providing these definitions for informational and educational purposes only. Please discuss your specific situation or questions with an investment professional.

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

Active management.

The trading of securities to take advantage of market opportunities. In contrast to passive management, active managers rely on research, market forecasts, and their own judgment and experience in selecting securities to buy and sell.

A mathematician who calculates premiums, reserves, dividends, insurance, pension and annuity rates for insurance and financial services companies.

Aggressive growth fund.

An investment fund that takes higher risk of loss in return for potentially higher returns or gains.

A measure of the difference between a fund's actual returns and its expected performance, given its level of risk as measured by beta. A positive alpha figure indicates the fund has performed better than its beta would predict. In contrast, a negative alpha indicates the fund's underperformance, given the expectations established by the fund's beta. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

Annual rate of return.

The annual rate of gain or loss on an investment, expressed as a percentage.

Annual report.

A yearly report or record of the financial position and operations of an investment or company.

The person whose life is insured is the annuitant. The annuitant and the annuity owner aren’t necessarily the same person.

Annuitization.

The time you spend contributing to your annuity is the accumulation phase. The annuitization phase begins when you start receiving money from your annuity.

An insurance contract issued by a life insurance company. The contract provides income at regular intervals for a defined period of time, such as a specific number of years or for life.

Annuity commencement date.

The date stated in the annuity contract indicating when annuity payments will begin. This is also known as the annuity start date.

Apreciação.

An increase in the value of an investment.

Anything with commercial or exchange value that is owned by a business, institution or individual. Examples include cash, real estate and investments.

Asset allocation.

Spreading your investments between asset categories (stocks, bonds, cash or cash equivalents) may help minimize risk. That’s because investment categories respond to changing economic and political conditions in different ways. Just keep in mind that the use of asset allocation does not guarantee returns or insulate you from potential losses.

Asset class.

A group of securities or investments that have similar characteristics and behave similarly in the marketplace. Three common asset classes are equities (such as stocks), fixed income (such as bonds), and cash alternatives or equivalents (such as money market accounts).

Asset-based fees.

Expenses that are based on the amount of assets in your plan. These fees are generally charged as percentages or basis points.

Automatic asset rebalancing (AAR)

An optional service that will periodically exchange money between funds in your account to maintain your original investment levels. AAR saves you the time and hassle of manually reallocating your current balance every few months.

Average annual total returns.

The annual compounded returns that would have produced the cumulative total return if fund performance had been constant during a given period.

Back-end load.

A fee imposed by some funds when shares are redeemed (sold back to the fund) during the first few years of ownership. This is also referred to as a contingent deferred sales charge.

Balanced fund.

A fund with an investment objective of both long-term growth and income, through investment in both stocks and bonds.

Barclay’s Global Aggregate Sovereign Bond Index.

An unmanaged index that is the sovereign component of the Barclays Global Aggregate Bond Index; comprises bonds of investment-grade, BB+, BB and unrated global sovereign issues with maturities ranging from one to 98 years.

Barclay’s U. S. Corporate High Yield 2% Issuer Capped Index.

An unmanaged index that reflects the performance of fixed-rate, non-investment-grade, U. S. dollar-denominated taxable corporate bonds. The maximum exposure to any one issuer is limited to 2%, and the holdings must have at least one year to maturity, have a minimum of $150 million par value outstanding and be publicly issued with a maximum credit rating of Ba1; gives a broad look at how high-yield (“junk”) bonds have performed.

Barclays 7-Year Municipal Bond Index.

An unmanaged index that consists of a broad selection of investment-grade general obligation and revenue bonds with maturities of approximately seven years.

Barclays Global Aggregate Bond Index.

An unmanaged index of fixed-rate, publicly issued, taxable bond market issues with a remaining maturity of at least one year; a broad-based measurement of the performance of the global investment-grade fixed-income markets.

Barclays Global Aggregate Corporate Bond Index.

An unmanaged index that is the corporate component of the Barclays Global Aggregate Bond Index; comprises bonds of investment-grade, high-yield, and unrated corporate issues from North America, Europe, Australia and Asia-Pacific regions with maturities ranging from one to 100 years.

Barclays Municipal Bond Index.

An unmanaged, market value-weighted index of investment-grade municipal bonds with a minimum credit rating of BAA and maturities of one year or more; serves as a broad market performance index for the tax-exempt bond market.

Barclays U. S. 1-3 Year Government/Credit Bond Index.

An unmanaged index of U. S. dollar-denominated, investment-grade, fixed-rate, publicly issued, taxable bond market issues (including Treasury, government and corporate securities) with a remaining maturity of one to three years.

Barclays U. S. Aggregate Bond Index.

An unmanaged market value-weighted index of investment grade, fixed-rate debt issues (including government, corporate, asset-backed and mortgage-backed securities with maturities of one year or more) that is generally representative of the bond market as a whole.

Barclays U. S. Treasury Inflation Protected Securities (TIPS) Index.

An unmanaged, market capitalization-weighted index that measures the performance of all U. S. dollar-denominated, fixed-rate, nonconvertible, investment-grade, publicly-issued U. S. TIPS with $250 million or more in outstanding face value and a remaining maturity of at least one year.

Basis point.

One-hundredth of one percent, or 0.01%. For example, 20 basis points equals 0.20%. Investment expenses, interest rates, and yield differences among bonds are often expressed in basis points.

An unmanaged group of securities whose performance is used as a standard to measure investment performance. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500 Index.

A measure of a fund's sensitivity to market movements. The beta of the market is 1.00 by definition. Morningstar calculates beta by comparing a fund's excess return over Treasury bills to the market's excess return over Treasury bills. A beta of 1.10 shows that the fund has performed 10% better than its benchmark index in up markets and 10% worse in down markets, assuming all other factors remain constant. Conversely, whereas a beta of 0.85 indicates that the fund's excess return is expected to perform 15% worse than the market's excess return during up markets and 15% better during down markets. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

Bloomberg Roll Select Commodity Total Return Index.

A version of the Bloomberg Commodity Index that aims to mitigate the effects of contango market structure on index performance. For each commodity, the index rolls into the futures contract showing the most backwardation or the least amount of contango, selecting from those eligible contracts with nine months or fewer until expiration.

BofA Merrill Lynch (BofAML) 1-Year T-Bill Index.

An unmanaged index that measures the returns of 12-month Treasury bills. Consists of a single issue purchased at the beginning of a month and held for the full month. At the end of that month, that issue is sold and rolled into a newly-selected issue. The issue selected at each month-end rebalancing is the outstanding T-bill with the longest maturity.

BofA Merrill Lynch (BofAML) 6-Month Treasury Bill (T-Bill) Index.

An unmanaged index that measures the returns of six-month Treasury bills. Consists of a single issue purchased at the beginning of a month and held for the full month. At the end of that month, that issue is sold and rolled into a newly selected issue. The issue selected at each month-end rebalancing is the outstanding T-bill that matures closest to, but not beyond, six months from the rebalancing date.

BofA Merrill Lynch (BofAML) AAA U. S. Treasury/Agency Master Index.

An unmanaged index that gives a broad look at how U. S. government bonds with a remaining maturity of at least one year have performed.

BofA Merrill Lynch (BofAML) Current 5-year U. S. Treasury Index.

An unmanaged, one-security index, rebalanced monthly, that measures the performance of the most recently issued 5-year U. S. Treasury note; a qualifying note is one auctioned on or before the third business day prior to the final business day of the month.

BofA Merrill Lynch (BofAML) Global High Yield Index.

An unmanaged, market capitalization-weighted index that gives a broad-based measurement of global high-yield fixed-income markets; measures the performance of below-investment-grade, corporate debt with a minimum of 18 months remaining to final maturity at issuance that is publicly issued in major domestic or eurobond markets, and is denominated in U. S. dollars, Canadian dollars, British pounds and euros.

BofA Merrill Lynch (BofAML) U. S. High Yield Cash Pay Constrained Index.

An unmanaged, market-weighted index that measures the performance of publicly issued, nonconvertible, fixed-rate, coupon-bearing, U. S. dollar-denominated, below-investment-grade corporate debt with a maturity of at least one year. Each issue represented must have an outstanding par value of at least $50 million, must be less than BBB/BAA3-rated but not in default, and is restricted to a maximum of 2% of the total index.

A debt security that represents money borrowed by a corporation, government, or other entity. The borrower repays the amount of the loan, plus a percentage as interest. Income funds generally invest in bonds.

A fund that invests primarily in bonds and other debt instruments.

Bond rating.

A rating or grade that’s intended to indicate the credit quality of a bond. The financial strength of its issuer and the likelihood that it will repay the debt are considered. Agencies such as Standard & Poor’s, Moody’s Investors Service and Fitch issue ratings for different bonds, ranging from AAA (highly unlikely to default) to D (in default).

A person who acts as an intermediary between the buyer and seller of a security, insurance product or mutual fund. This person is often paid a commission. The terms broker, broker/dealer and dealer are sometimes used interchangeably.

Brokerage window.

An optional service lets you establish a self-directed brokerage account. This option carries distinct charges.

Capital appreciation fund.

An investment fund that seeks growth in share prices by investing primarily in stocks whose share prices are expected to rise.

Capital gain.

An increase in the value of an investment, calculated by the difference between the net purchase price and the net sales price.

Capital loss.

The loss in the value of an investment, calculated by the difference between the purchase price and the net sales price.

Capital preservation.

An investment goal or objective to keep the original investment amount (the principal) from decreasing in value.

Capitalization (Cap)

The total market value of a company’s outstanding equity.

Cash alternative / cash equivalent.

An investment that is short term, highly liquid, and has high credit quality.

Cash refund annuity.

An annuity that makes periodic payments during your lifetime, as well as a benefit to your beneficiaries upon your death. Your death benefit is equal to your premium(s) paid, minus payments made during your lifetime.

Citigroup 3-month U. S. Treasury Bill (T-Bill) Index.

An unmanaged index that is generally representative of 3-month Treasury bills; consists of an average of the last 3-month Treasury bill issues (excluding the current month-end bill).

Citigroup Non-U. S. Dollar World Government Bond Index (Citigroup WGBI Non-US)

An unmanaged, market capitalization-weighted index that reflects the performance of fixed-rate investment-grade sovereign bonds with remaining maturities of one year or more issued outside the United States; generally considered to be representative of the world bond market.

® )">Citigroup U. S. Broad Investment Grade Bond Index (USBIG ® )

An unmanaged, market capitalization-weighted index that measures the performance of U. S. dollar-denominated bonds issued in the U. S. investment-grade bond market; includes fixed-rate, U. S. Treasury, government-sponsored, collateralized and corporate debt with remaining maturities of one year or more.

Citigroup U. S. High-Yield Market Index.

An unmanaged, market capitalization-weighted index that reflects the performance of the North American high-yield market; includes U. S. dollar-denominated, fixed-rate, cash-pay and deferred-interest securities with remaining maturities of one year or more, issued by corporations domiciled in the United States or Canada.

Citigroup World Government Bond Index (WGBI) (Unhedged)

An unmanaged, market capitalization-weighted index that is not hedged back to the U. S. dollar and reflects the performance of the global sovereign fixed-income market; includes local currency, investment-grade, fixed-rate sovereign bonds issued in 20-plus countries, with remaining maturities of one year or more.

Class A shares.

Class A shares typically impose a front-end sales load and tend to have a lower 12b-1 fee and lower annual expense than other mutual fund share classes. Some mutual funds reduce the front-end load as the size of the investment increases.

Class C shares.

Class C shares generally have a level load. They might include a 12b-1 fee, other annual expenses and either a front - or back-end sales load.

Class I shares.

Class I shares are often referred to as institutional shares because they’re generally intended for financial institutions that purchase shares for their own clients’ accounts. These shares have no front-end sales charge and cannot be purchased by the general public.

Class R shares.

Class R shares are typically provided exclusively to retirement plans. Charges may vary based on the plan’s requirements and recordkeeping preferences.

Collective investment fund (CIF)

Investments created by a bank or trust company for employee benefit plans, such as 401(k) plans. Also referred to as collective or commingled trusts, CIFs pool the assets of retirement plans for investment purposes. CIFs are governed by rules and regulations that apply to banks and trust companies instead of being registered with the SEC.

Comissão.

Compensation paid to a broker or other salesperson when investments are bought or sold.

Common stock.

An investment that represents a share of ownership in a corporation.

Company stock fund.

A fund that invests primarily in employer securities that may also maintain a cash position for liquidity purposes.

Composição.

The cumulative effect that reinvesting an investment’s earnings can have by generating additional earnings of their own.

Contingent Deferred Sales Charge (CDSC)

An investment company may collect this fee if you withdraw money from your investment early in the contract. It compensates the company for the high cost they incur when setting up your account. The CDSC typically goes down over time, and goes away altogether when you reach the defined period for the contract.

Contract issue date.

The date you sign paperwork to buy an annuity.

Vínculo corporativo.

A bond issued by a corporation, rather than by a government. The credit risk for a corporate bond is based on the repayment ability of the company that issued the bond.

Credit risk.

The risk that a bond issuer will default. In other words, not repay principal or interest to the investor, as promised. This is also known as default risk.

Current yield.

The current rate of return of an investment. This is calculated by dividing the investment’s expected income payments by its current market price.

A person or entity, such as a bank or trust company, responsible for holding financial assets.

Deferred annuity.

A deferred annuity lets you potentially grow your assets so they could provide a steady stream of income during retirement. When you purchase the annuity, you deposit money into it over a period of time. That money is invested. At a certain point, usually at retirement, you start receiving payments from the annuity. These payments can be made in a lump sum or in installments.

The opposite of inflation, deflation is a decline in the prices of goods and services.

Depreciação.

A decrease in the value of an investment.

Designated investment alternative.

Your plan’s investment options.

Distribuição.

Money you take from your financial account, such as an IRA. Also called a withdrawal.

Diversificação.

The practice of investing in multiple asset classes and securities with different risk characteristics.

Money an investment fund or company pays to its stockholders, typically from profits. The amount is usually expressed on a per-share basis.

sm ">Dow Jones (DJ) Global Select Real Estate Securities Index SM.

An unmanaged index that measures the performance of publicly traded securities of globally traded real estate operating companies (REOCs) and real estate investment trusts (REITs).

Dow Jones Industrial Average (DJIA)

The Dow is a widely-followed price-weighted index of 30 of the largest, most widely-held U. S. stocks.

An estimate of bond price sensitivity to changes in interest rates. The higher the duration, the greater the change (higher risk) in relation to interest-rate movements.

Money gained on the principal in your financial accounts, such as an IRA.

Emerging market.

Generally, economies that are in the process of growth and industrialization. Developing markets, such as Africa, Asia, Eastern Europe, the Far East, Latin America and the Middle East may hold significant growth potential in the future. Investing in emerging markets may provide significant rewards, as well as significant risks.

Emerging market fund.

A fund that invests primarily in emerging market countries.

Employee Retirement Income Security Act of 1974 (ERISA)

A federal law that imposes various requirements on voluntary established pension plans in the private industry. ERISA establishes standards in order to provide protection for plan participants.

A security or investment representing ownership in a corporation. Equity is often used interchangeably with stock. Compare to a bond, which represents a loan to a borrower.

Equity Fund.

A fund that invests primarily in equities.

Equity wash restriction.

A provision in certain stable value or fixed income products that require transfers to be directed to an equity fund or other noncompeting investment option. Restrictions last for a stated period of time (usually 90 days) before those funds may be invested in any other competing fixed income fund (such as a money market fund) provided by the plan.

Exchange traded fund (ETF)

An investment company, such as a mutual fund. ETF shares are traded throughout the day on stock exchanges at market-determined prices.

Expense ratio.

A measure of what it costs to operate an investment, expressed as a percentage of its assets or in basis points. You pay for these costs through a reduction in the investment’s rate of return. See operating expenses and total annual operating expenses.

Corporação de Seguro de Depósito Federal (FDIC)

A federal agency that insures deposits in member banks and thrift institutions.

Any person or party who exercises any discretionary authority or control over the management of a plan, or the disposition of its assets. For a fee, a fiduciary gives investment advice, or has the authority to do so. A fiduciary also has discretionary responsibility in the administration of that plan.

Autoridade Reguladora da Indústria Financeira (FINRA)

A self-regulatory organization for brokerage firms doing business in the United States. FINRA operates under the supervision of the U. S. Securities and Exchange Commission (SEC). FINRA protects investors and ensures market integrity.

Financial statement.

The written record of the financial status of a fund or company. Financial statements are usually published in a company’s annual report. They generally include a balance sheet, an income statement, and other financial statements and disclosures.

Fixed annuity.

With a fixed annuity, the insurance company guarantees the rate of return and payout. Guarantees are subject to the claims-paying ability of the issuing insurance company.

Fixed income fund.

A fund that invests primarily in bonds and other fixed-income securities. Fixed income funds often provide shareholders with current income.

Fixed return investment.

An investment that provides a specific rate of return to the investor.

Flat rate expenses.

Base fees charged to a plan, regardless of the number of participants. Examples of flat rate expenses include preparation of IRS Form 5500, discrimination testing and vesting calculation.

Front-end load.

A sales charge on mutual funds or annuities assessed at the time of purchase.

® allequityreitsindex">FTSE NAREIT ® All Equity REITs Index.

An unmanaged, free float-adjusted index that measures the performance of all publicly traded real estate companies and tax-qualified U. S. equity REITs; index constituents must have more than 50% of total assets in qualifying real estate assets other than mortgages secured by real property, and must meet minimum size and liquidity criteria.

FTSE World ex US Index.

An unmanaged, broad-based, free float-adjusted, market capitalization-weighted index that measures the performance of large-cap and mid-cap stocks in developed and advanced emerging countries, excluding the United States.

FTSE World Index.

An unmanaged, broad-based, free float-adjusted, market capitalization-weighted index that measures the performance of large-cap and mid-cap stocks in developed and advanced emerging countries, including the United States.

Fund family.

A group or “complex” of mutual funds. Each group typically has its own investment objective, and is managed and distributed by the same company. Fund family also refers to a group of collective investment funds or a group of separate accounts managed and distributed by the same company.

Fund window.

A plan feature that lets you buy investments that are not included in your plan’s general menu of designated investment alternatives.

Glide path.

The shift over time in a target date fund’s asset allocation mix from a focus on growth to a focus on income.

Global fund.

A fund that invests primarily in securities anywhere in the world, including the United States.

Government securities.

Any debt obligations issued by a government or its agencies, such as U. S. Treasury bills.

Group annuity contract.

An annuity contract between an insurance company and an owner for the benefit of a designated group, such as retirement plan participants.

Growth and income fund.

A fund that has a dual strategy of growth or capital appreciation, as well as current income generation through dividends or interest payments.

Growth fund.

A fund that invests primarily in the stocks of companies with above-average risk in return for potentially above-average gains. These companies often pay little or no dividends, and their stock prices tend to have the most ups and downs from day to day.

Guaranteed interest account.

An account within a fixed or variable annuity that is guaranteed by the insurance company to earn at least a minimum rate of interest while invested in the contract.

Guaranteed investment contract.

A contract issued by an insurance company that guarantees a specific rate of return on an investment over a certain time period.

Guaranteed lifetime withdrawal benefit.

A feature sometimes offered in an annuity contract where the insurance company lets you withdraw a specified amount from an account. This benefit can apply to your entire life, the joint lives of you and another individuals (such as your spouse) or for a specified period of time. Withdrawals can be made even if the account balance is reduced to zero. This benefit it also known as a guaranteed minimum withdrawal benefit.

Immediate annuity.

You can convert a lump sum into payments for life or for a certain number of years from an immediate annuity. Payments begin immediately.

tm primeretailindex">iMoneyNet TM Prime Retail Index.

An unmanaged index that is an average of non-government retail money market mutual funds. Portfolio holdings of prime money market mutual funds include U. S. Treasury, U. S. non-Treasury obligations, repurchase agreements, time deposits, domestic and foreign bank obligations, commercial paper, floating-rate notes and asset-backed commercial paper.

Inception date.

The date a fund’s operations begin.

Income fund.

A fund that primarily seeks current income rather than capital appreciation.

A benchmark used to evaluate a fund’s performance. The most common indexes for stock funds are the Dow Jones Industrial Average and the Standard & Poor’s 500 Index.

Index fund.

An investment fund that seeks to parallel the performance of a particular stock market or bond market index. Often referred to as passively-managed investments.

Individual annuity contract.

An annuity contract between an insurance company and a person or persons.

Individual Retirement Account (IRA)

IRAs are accounts that you own and fund through your own contributions. Two common types of IRAs are:

• Traditional IRAs – Contributions are made with pre-tax dollars, and earnings are tax-deferred. This means that you don’t owe taxes until the funds are withdrawn, usually at retirement.

• Roth IRAs – Contributions are made with after-tax dollars, so you don’t pay taxes on the money as it accumulates.

Individual service expenses.

Charges applied to participants who take advantage of special plan features, such as participant loans.

The general upward price movement of goods and services in an economy. Inflation is generally one of the major risks to investors over the long term because it erodes the purchasing power of their savings.

Interest / Interest rate.

The fee charged by a lender to a borrower, usually expressed as an annual percentage of the principal. For example, someone investing in bonds will receive interest payments from the bond’s issuer.

Interest rate risk.

The possibility that the market value of a bond or bond fund will decrease due to rising interest rates. When interest rates (and bond yields) go up, bond prices usually go down, and vice versa.

International fund.

A fund that invests primarily in the securities of companies located outside of the United States. Or whose revenues come from outside the United States.

Investment adviser.

A person or organization hired by an investment fund or an individual to give professional advice on investments and asset management practices.

Investment company.

A corporation or trust that invests pooled shareholder dollars in securities that are appropriate to the organization’s objective. The most common type of investment company, a mutual fund, stands ready to buy back its shares at their current net asset value.

Investment objective.

The goal that an investment fund or investor seeks to achieve, such as growth or income.

Investment return.

The gain or loss on an investment over a certain period, expressed as a percentage. Income and capital gains or losses are included in calculating the investment return.

Investment risk.

The possibility of losing some or all of the amounts invested, or not gaining value in an investment.

Joint and last survivor annuity.

An annuity that provides periodic payments for the joint lives of two individuals. Benefits are payable upon the death of one individual to the surviving individual at a percentage of the original payment amount. Death benefit amounts depend on the terms of the contract.

JPM CEMBI Broad Diversified Index.

An unmanaged index in the Corporate Emerging Market Bond Index (CEMBI) series that measures the performance of U. S. dollar-denominated corporate bonds issued by emerging market countries as selected by JPMorgan.

JPM EMBI Global Diversified Index.

An unmanaged index in the Emerging Market Bond Index (EMBI) series that measures the performance of U. S. dollar-denominated sovereign bonds issued by emerging market countries as selected by JPMorgan.

JPM Emerging Markets Bond Index (EMBI)

An unmanaged index that reflects the total returns of U. S. dollar-denominated sovereign bonds issued by emerging market countries as selected by JPMorgan.

JPM GBI Global Index (Unhedged)

An unmanaged, market capitalization-weighted index in the Government Bond Index (GBI) series that measures the local market performance of fixed-rate government bonds issued by high-income countries as selected by JPMorgan; the index is not hedged to the U. S. dollar.

JPM GBI-EM Global Diversified Index.

An unmanaged index in the Government Bond Index-Emerging Markets (GBI-EM) series that measures the local market performance of U. S. dollar-denominated sovereign bonds issued by emerging market countries as selected by JPMorgan.

Large capitalization (Cap)

A reference to either a large company stock or an investment fund that invests in the stocks of large companies.

Large-cap fund.

A fund that invests primarily in large-cap stocks.

Large-cap stocks.

Stocks of companies with a large market capitalization. Large caps tend to be well-established companies, so their stocks typically have less risk than smaller caps, but they also offer less potential for dramatic growth.

Life annuity.

An annuity that makes periodic payments only for the life of one individual. Also known as a single life annuity.

Lifecycle fund.

A fund designed to provide varying degrees of long-term appreciation and capital preservation based on your age or target retirement date. As you get older or closer to retirement, a lifecycle fund’s mix of asset classes becomes less focused on growth and more focused on income. Also known as target date retirement or age-based funds.

Lifestyle fund.

A fund that maintains a predetermined risk level and generally uses words like “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Used interchangeably with target risk fund.

The ease that an investment can be converted into cash. If a security is very liquid, it can be bought or sold easily. If a security is not liquid, it may take additional time and/or a lower price to sell it.

Longevity risk.

The risk that you will live longer than expected and run out of retirement money.

Management fee.

A service fee or charge paid to an investment manager.

Market capitalization (Cap)

The market value of a company. Market capitalization can be determined by multiplying the number of outstanding shares of a company’s stock by the stock’s current market price per share.

Risco de mercado.

The possibility that the value of an investment will fall because of a general decline in the financial markets.

Markit CDX Emerging Markets 5-year Total Return Index.

An index comprising credit default swaps (CDS) on sovereign debt from three regions: 1) Latin America; 2) Eastern Europe, the Middle East and Africa; and 3) Asia. The index measures the performance of and replicates the behavior of a fictitious portfolio that buys one CDX Emerging Markets 5-year Index contract and invests the remaining notional principal amount in money market instruments. The portfolio is always invested in the most recently published (on-the-run) CDX Emerging Markets 5-year series that it tracks. (Whenever a new CDX Emerging Markets 5-year series is issued, due to a regular index roll [every March and September] or due to a credit event in the current series, the CDS position in the reference portfolio is rolled into the on-the-run/reduced index position.)

Markit CDX North American High Yield 5-year Total Return Index (CDX NA HY)

An equally weighted index that measures the performance of 100 liquid non-investment-grade reference entities (those given a long-term credit rating by Fitch, Moody’s and/or S&P that is lower than BBB-/Baa3) domiciled in North America that trade in the credit default swaps (CDS) market. The index measures the performance of and replicates the behavior of a fictitious portfolio that buys one CDX NA HY 5-year Index contract and invests the remaining notional principal amount in money market instruments. The portfolio is always invested in the most recently published (on-the-run) CDX NA HY 5-year series that it tracks. (Whenever a new CDX NA HY 5-year series is issued, due to a regular index roll [every March and September] or due to a credit event in the current series, the CDS position in the reference portfolio is rolled into the on-the-run/reduced index position.)

Maturity date.

The date when the principal amount of a loan, bond or any other debt becomes due and is to be paid in full.

Mid capitalization (Cap)

A reference to either a medium-sized company stock or an investment fund that invests in the stocks of medium-sized companies.

Mid-cap fund.

A fund that invests primarily in mid-cap stocks.

Mid-cap stocks.

Stocks of companies with a medium market capitalization. Mid caps are often considered to offer more growth potential than larger caps, but less than small caps. They also are considered to offer less risk than small caps, but more than large caps.

Money market fund.

A mutual fund that invests in short-term, high-grade fixed-income securities. Money market funds seek the highest level of income consistent with preserving capital. In other words, they try to maintain a stable share price.

Morningstar.

A leading mutual fund research and tracking firm that categorizes funds by objective and size, then ranks fund performance within those categories.

® (mstar)lifetimeallocationindexes">Morningstar ® (MStar) Lifetime Allocation Indexes.

A series of unmanaged, multi-asset-class indexes designed to benchmark target-date investment products. Each index is available in three risk profiles: aggressive, moderate and conservative. The index asset allocations adjust over time, reducing equity exposure and shifting toward traditional income-producing investments. The strategic asset allocation of the indexes is based on the Lifetime Asset Allocation methodology developed by Ibbotson Associates, a Morningstar company.

® (mstar)lifetimemoderateindexes">Morningstar ® (MStar) Lifetime Moderate Indexes.

Each of the Nationwide Target Destination Funds has an individual Morningstar index to go with it that matches the year number in the fund name. The Nationwide Destination 2010 Fund uses the Morningstar ® (Mstar) Lifetime Moderate 2010 Index. The other Target Destination Funds follow suit, changing only the number in the index name (2015, 2020, 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060). The Morningstar Lifetime Allocation Indexes definition is used as an overarching benchmark index description; an individual market index definition is not used for each fund.

® (mstar)lifetimetargetriskindex">Morningstar ® (MStar) Lifetime Target Risk Index.

One of a series of unmanaged indexes that cover a global set of stocks, bonds, and commodities and are designed to benchmark asset allocation products across a risk spectrum ranging from conservative to aggressive. Asset-class weights are adjusted annually and rebalanced quarterly, based on an asset allocation methodology from Ibbotson Associates, a Morningstar company.

MPT Statistics (Modern Portfolio Theory)

Alpha, beta, and R-squared are modern-portfolio-theory measures of a fund's relative risk, based on a least-squares regression of a fund's excess returns on the excess returns of a market index. Standard deviation is not considered an MPT statistic because it is not generated through the same formula or mathematical analysis as the other three statistics.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in global developed and emerging markets as determined by MSCI.

MSCI ACWI ex USA Index.

An unmanaged, market capitalization-weighted index that is designed to measure the performance of global stocks in developed and emerging markets, excluding U. S.-based companies.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in global developed and emerging markets as determined by MSCI.

® exusagrowth">MSCI ACWI ® ex USA Growth.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap growth stocks in global developed and emerging markets as determined by MSCI; excludes the United States.

® index">MSCI EAFE ® Index.

An unmanaged, free float-adjusted, market capitalization-weighted index. The index is designed to measure the performance of the stocks in developed markets outside the United States and Canada.

® valueindex">MSCI EAFE ® Value Index.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in developed markets as determined by MSCI; excludes the United States and Canada.

® index">MSCI Emerging Markets ® Index.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in emerging-country markets as determined by MSCI.

® nettotalreturnindex">MSCI Emerging Markets ® Net Total Return Index.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in emerging-country markets as determined by MSCI. The net total return component measures whole market performance, including price performance and income from dividend payments, after the deduction of withholding taxes.

sm ">MSCI World Index SM.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of large-cap and mid-cap stocks in global developed markets as determined by MSCI.

sm free">MSCI World Index SM Free.

An unmanaged, free float-adjusted, market capitalization-weighted index that is designed to measure the performance of global developed-market equities. The “Free” suffix denotes an index with a somewhat different history but the same constituents and performance in relation to its counterpart without the suffix.

Fundo mútuo.

An investment company registered with the SEC that buys a portfolio of securities selected by a professional investment adviser. Mutual funds can have actively-managed portfolios, where a professional investment adviser creates a unique mix of investments to meet a particular investment objective. They can also have passively-managed portfolios, in which the adviser tries to match the performance of a selected benchmark or index.

NASDAQ-100 Index.

An unmanaged index that includes 100 of the largest domestic and international nonfinancial securities listed on the Nasdaq Stock Market, based on market capitalization.

National Association of Securities Dealers Automated Quotation (NASDAQ)

A composite index that measures the performance of more than 5,000 U. S. and non-U. S. companies traded “over the counter” through NASDAQ.

Net asset value (NAV)

The net dollar value of a single investment fund share or unit that is calculated by the fund on a daily basis.

Bolsa de Nova York (NYSE)

The oldest and largest stock exchange in the United States. The NYSE was founded in 1792.

No-load fund.

A mutual fund whose shares are sold without a sales commission. No-load funds do not charge a combined 12b-1 fee and service fee of more than 25 basis points, or 0.25% per year.

® ">NYSE Arca Tech 100 Index ®

An unmanaged, price-weighted index of at least 100 individual technology-related securities. This index includes stocks of companies from various industries that produce or deploy innovative technologies.

“Archipelago ® ”, “ARCA ® ”, “ARCAEX ® ”, “NYSE ® ”, “NYSE ARCA SM ” and “NYSE Arca Tech 100 SM ” are trademarks of the NYSE Group, Inc. and Archipelago Holdings, Inc. and have been licensed for use by the Nationwide Funds. This Fund is not sponsored, endorsed, sold or promoted by Archipelago Holdings, Inc. (“ARCA”). ARCA makes no representation or warranty regarding the advisability of investing in securities generally, in the Fund particularly, or the ability of the NYSE Arca Tech 100 Index to track general stock market performance.

Operating expenses.

Costs associated with running or operating an investment fund. Operating expenses may include custody fees, management fees and transfer agent fees. Also see expense ratio and total annual operating expenses.

The price of a stock divided by trailing 12-month earnings per share.

Passive management.

The process or approach to operating or managing a fund in a passive or non-active manner, typically with the goal of mirroring an index. Passive management funds are often referred to as index funds and differ from investment funds that are actively managed.

Per participant charges.

Charges are based on the total number of eligible employees or actual participants in the plan.

Period certain.

A payment feature available in some annuity contracts that guarantees periodic payments for a set period of time. For example, in a life annuity, periodic payments would be made to you or beneficiary for the either the guaranteed period or the life of the individual. Whichever is longer.

Plan administrative expenses.

Charges used to cover services provided for the day-to-day operations of the plan, such as recordkeeping, accounting, customer service support and daily valuation.

Pooled guaranteed investment contract (GIC) fund charges.

Charges for a common, fixed income investment option. Includes a number of contracts issued by an insurance company or bank that pays an interest rate. Charges include investment management and administrative fees.

A collection of investments, such as stocks and bonds owned by an individual, organization or investment fund.

Portfolio manager.

The individual, team or firm making the investment decisions for an investment fund, including the selection of individual investments.

Portfolio turnover rate.

A measure of how frequently investments are bought and sold within an investment fund during a year. The portfolio turnover rate is usually expressed as a percentage of the total value of an investment fund.

Money you’ve contributed to your financial account, such as an IRA.

Prospecto.

The official document that describes certain investments, such as mutual funds, to prospective investors. The prospectus contains information required by the SEC, such as investment objectives and policies, risks, services and fees.

Provider / Recordkeeping expenses.

These expenses are a combination of various charges. Also known as an asset management charge (AMC) or wrap charge.

Qualified / Nonqualified.

These terms identify whether contributions are made with pre-tax or post-tax dollars. Qualified contributions come from money that hasn’t been taxed yet, such as money withheld from your paycheck for your 401(k). Nonqualified contributions come from money that has already been taxed, such as the check you write for your Roth IRA.

Rate of return.

The gain or loss on an investment over a period of time. The rate of return is typically reported annually and expressed as a percentage.

Real rate of return.

The rate of return on an investment adjusted for inflation.

Redemption.

The selling of fund shares back to the fund. This may also refer to the repayment of a bond on or before the agreed upon pay-off date.

Redemption fee.

A fee, generally charged by a mutual fund, to discourage certain trading practices by investors, such as short-term or excessive trading. If a redemption fee is charged, it is done when the investment is redeemed or sold.

The gain or loss on an investment. A positive return indicates a gain, while a negative return indicates a loss.

An optional rider added to your life insurance policy or annuity contract can offer additional coverage and protection on select products.

The potential for you to lose some or all of your investments, or to fail to achieve your investment objectives.

Risk tolerance.

An investor’s ability and willingness to lose some or all of an investment in exchange for greater potential returns.

R-squared measures the relationship between a portfolio and its benchmark. It can be thought of as a percentage from 1 to 100. R-squared is not a measure of the performance of a portfolio. If a portfolio moves like the benchmark, it has a high R-squared. If it doesn't move at all like the benchmark, it has a low R-squared.

General Range for R-Squared:

70-100% = good correlation between the portfolio's returns and the benchmark's returns 40-70% = average correlation between the portfolio's returns and the benchmark's returns 1-40% = low correlation between the portfolio's returns and the benchmark's returns.

R-squared can be used to ascertain the significance of a particular beta or alpha . Generally, a higher R-squared will indicate a more useful beta figure. If the R-squared is lower, then the beta is less relevant to the fund's performance. Alpha, beta and R-squared are considered MPT (Modern Portfolio Theory) statistics and are based on a least-squared regression of the fund’s return over Treasury bills (called excess return) and the excess returns of the fund’s benchmark index.

® growthindex">Russell 1000 ® Growth Index.

An unmanaged index that measures the performance of the large capitalization growth segment of the U. S. equity universe. Includes Russell 1000 ® Index companies with higher price-to-book ratios and higher forecasted growth values.

® index">Russell 1000 ® Index.

An unmanaged index that measures the performance of stocks of the large capitalization segment of the U. S. equity universe.

® valueindex">Russell 1000 ® Value Index.

An unmanaged index that measures the performance of the large capitalization value segment of the U. S. equity universe. Includes Russell 1000 ® Index companies with lower price-to-book ratios and lower forecasted growth values.

® growthindex">Russell 2000 ® Growth Index.

An unmanaged index that measures the performance of the small capitalization growth segment of the U. S. equity universe. Includes Russell 2000 ® Index companies with higher price-to-book ratios and higher forecasted growth values.

® index">Russell 2000 ® Index.

An unmanaged index that measures the performance of the small-capitalization segment of the U. S. equity universe.

® valueindex">Russell 2000 ® Value Index.

An unmanaged index that measures the performance of the small capitalization value segment of the U. S. equity universe; includes those Russell 2000 ® Index companies with a lower price-to-book ratios and lower forecasted growth values.

® growthindex">Russell Midcap ® Growth Index.

An unmanaged index that measures the performance of the mid capitalization growth segment of the U. S. equity universe. Includes Russell Midcap® Index companies with higher price-to-book ratios and higher forecasted growth values.

® valueindex">Russell Midcap ® Value Index.

An unmanaged index that measures the performance of the mid-capitalization value segment of the U. S. equity universe; includes those Russell Midcap ® Index companies with a lower price-to-book ratios and lower forecasted growth values.

® index">S&P 500 ® Index.

An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U. S. companies in leading industries; gives a broad look at the U. S. equities market and those companies’ stock price performance.

® (s&p400)index">S&P MidCap 400 ® (S&P 400) Index.

An unmanaged, market capitalization-weighted index of 400 stocks of medium-sized U. S. (those with a market capitalization of $1 billion to $4.4 billion) $1.4 billion to $5.9 billion.

S&P North American Technology Sector Index™

An unmanaged, modified, market capitalization-weighted index that measures the performance of the technology sector of the U. S. equity market.

S&P SmallCap 600/Citigroup Value Index.

An unmanaged index that measures the performance of the small-capitalization value sector of the U. S. equity market.

S&P/Citigroup International Treasury Bond Ex-U. S. Index (Hedged)

An unmanaged index that measures the performance of Treasury bonds with a remaining maturity of one year or more issued in local currencies by developed market countries outside the United States. Each country’s bonds are market value-weighted, and country weights are modified market weighted to balance levels of debt outstanding and to achieve diversification.

Sales charge.

A charge for buying an investment.

SEC 30-day Yield.

An unmanaged, market capitalization-weighted index of 500 stocks of leading large-cap U. S. companies in leading industries. This index gives a broad look at the U. S. equities market and the stock price performance of those 500 companies.

Sector fund.

A fund that invests in a particular or specialized segment of the marketplace, such as stocks of companies in the software, health care or real estate industries.

Securities and Exchange Commission (SEC)

A government agency created by congress in 1934 to regulate the securities industry and to help protect investors. The SEC is responsible for ensuring that the securities markets operate fairly and honestly.

A general term for stocks, bonds, mutual funds and other investments.

Separate account.

An insurance company account that is segregated or separated from the insurance company’s general assets. This also refers to a fund managed by an investment adviser for a single plan.

A representation of ownership in a company or investment fund.

Share class.

Some investment funds and companies offer more than one type or group of shares, each of which is considered a class. Examples include “class A,” “Advisor” or “Institutional” shares. Each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.

Shareholder.

An owner of shares in an investment fund or corporation.

Shareholder-type fees.

Any fee charged against an investment for purchase and sale, other than the total annual operating expenses.

Sharpe ratio.

Calculated using standard deviation and excess returns over the 3-month U. S. Treasury Bill to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund’s historical risk adjusted performance. The Sharpe ratio is calculated for the past 36-month period by dividing a fund's annualized excess returns by the standard deviation of a fund's annualized excess returns.

Single premium / Single purchase payment.

A single premium annuity is a deferred annuity that lets you put money into your annuity account only once, when you first purchase the product.

Small capitalization (Cap)

Refers to either a small company stock or an investment fund that invests in the stocks of small companies.

Small-cap fund.

A fund that invests primarily in small-cap stocks.

Small-cap stocks.

Stocks of companies with smaller market capitalization. Small caps are often considered to offer more growth potential than large and mid caps, but they may come with more risk.

Stable value fund.

An investment fund that seeks to preserve principal and provide consistent returns and liquidity. Stable value funds include collective investment funds sponsored by banks or trust companies, as well as contracts issued by insurance companies.

® index">Standard & Poor’s 500 ® Index.

An unmanaged, market capitalization-weighted index of leading large-cap U. S. companies in leading industries. This index gives a broad look at the U. S. equities market and the stock price performance of those 500 companies.

Desvio padrão.

A statistical measure of risk. It reflects the extent to which an asset’s rate of return may fluctuate from period to period. When a fund has a high standard deviation, the predicted range of performance is wide, implying greater volatility. Morningstar computes standard deviation using the trailing monthly total returns for the appropriate time period. All of the monthly standard deviations are then annualized.

A security that represents an ownership interest in a corporation.

Stock fund.

A fund that invests primarily in stocks.

Stock symbol.

An abbreviation using letters and numbers assigned to securities to identify them. See ticker symbol.

Summary prospectus.

A short-form prospectus that mutual funds may use with investors. A summary prospectus is used if a long-form prospectus and additional information is available online or on paper, upon request.

Target date fund.

A fund designed to provide varying degrees of long-term appreciation and capital preservation based on your age or target retirement date. As you get older or closer to retirement, a lifecycle fund’s mix of asset classes becomes less focused on growth and more focused on income. Also known as a lifecycle fund.

Target risk fund.

A fund that maintains a predetermined asset mix and generally uses words such as “conservative,” “moderate” or “aggressive” in its name to indicate the fund’s risk level. Also known as a lifestyle fund.

Ticker symbol.

An abbreviation using letters and numbers assigned to securities and indexes to identify them. See stock symbol.

Time horizon.

The amount of time you expect to hold an investment before taking money out.

Total annual operating expenses.

A measure of what it costs to operate an investment. These expenses are typically expressed as a percentage of an investment’s assets, a dollar amount or in basis points. You pay these costs through a reduction in the investment’s rate of return. See expense ratio and operating expenses.

Transaction-based expenses.

Fees based on the execution of a particular plan service or transaction.

A person or entity, such as a bank, trust company or other organization, that is responsible for the holding and safekeeping of trust assets. The trustee may have other duties, such as investment management. A trustee serving as a “directed trustee” is responsible for the safekeeping of trust assets, but has no discretionary investment management duties or authority over the assets.

U. S. Treasury securities.

Debt securities issued by the United States government and secured by its full faith and credits. U. S. Treasury securities are the debt-financing instruments of the U. S. government. Often referred to as treasuries.

A representation of ownership in an investment that doesn’t issue shares. Most collective investment funds are divided into units instead of shares. See share.

Unit class.

Investment funds divided into units, instead of shares. Collective investment funds and other funds may offer more than one type or group of units, each of which is considered a class, such as “Class A”. For most investment funds, each class has different fees and expenses, but all of the classes invest in the same pool of securities and share the same investment objectives.

Unit value.

The dollar value of each unit on a given date.

Unitholder.

An owner of units in an investment. See shareholder.

Value fund.

A fund that invests primarily in stocks that are believed to be priced below what they’re really worth.

Variable annuity.

A variable annuity is a long-term investment product that provides a variable rate of return based on the performance of the investments you select. A variable annuity is a contract between you and an insurance company, and it’s sold by prospectus. While it may take some time, you should read the prospectus. The prospectus describes risk factors, fees and charges that may apply to you.

Variable annuity charges.

Variable annuities have fees and charges that include mortality and expense, investment management and administrative fees, contract fees and the expense of the underlying investment options. Variable annuities also have insurance-related charges, such sales expenses and surrender and transfer charges when an employee is terminated or withdraws from the plan’s investment.

Variable return investment.

Investments for which the return is not fixed. Variable return investments include stock and bond funds, as well as investments seeking to preserve principal but not guaranteeing a particular return. Examples include money market funds and stable value funds.

Volatilidade.

The amount and frequency of fluctuations in the price of a security, commodity or market within a specified time period. Generally, an investment with high volatility is said to have higher risk because there’s an increased chance that the price of the security will have fallen when an investor wants to sell.

Retirada.

Also called a distribution, a withdrawal is the money you take from your financial account, such as an IRA. For retirement accounts, distributions made prior to age 59½ may be subject to a 10% penalty tax. All taxable distributions at any age are subject to ordinary income tax, and surrender charges may apply. You may incur fees or penalties when you make a withdrawal, depending on the type of product and whether the account is qualified or non-qualified.

A fee or expense that is added to, or “wrapped around,” an investment to pay for one or more product features or services.

The value of interest or dividend payments from an investment. The yield is usually stated as a percentage of the investment price.

A fee assessed on certain mutual funds or share classes permitted under an SEC rule to help cover the costs associated with marketing and selling the fund. 12b-1 fees may also be used to cover shareholder servicing expenses.

Neither Nationwide nor our representatives provide tax or legal advice. You should consult with an attorney or other professional advisor for such advice. Please discuss your specific situation or questions with an investment professional or visit Financial Industry Regulatory Authority for more information.

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