The Comp Playbook: 10 terms to help you talk pay with confidence.

Compa-ratio. P75. Pay compression. We’ve managed to give pay a language that can need explaining before the actual conversation even starts.

After years in People leadership and more recently building Equidi and CompAce, I’m a big believer in making compensation easier to understand and act on. That includes being able to explain what a number means, why it matters and what you should do with it.

You might work with these terms every day. The manager preparing for a salary conversation, or the employee on the other side of it, might not.

So, I’ve pulled together ten useful compensation terms, with simple examples and the things to watch for. Keep it handy for your next pay review, or share it with someone who has ever asked: “What does that actually mean?”

1. Base salary vs total remuneration

Base salary is the fixed salary for doing the job, before tax, excluding employer superannuation and additional rewards. Total remuneration takes a broader view of what someone receives.

The detail matters: different reports and employers use package labels differently, particularly for bonuses, benefits and equity.

Example: A $120,000 base salary plus super is a different offer from a $120,000 package including super.

Put it to work: Before comparing two numbers, check exactly what each includes. For incentives, check whether the figure is a target or an actual payment.

2. Market percentile

A percentile shows where a pay figure sits within a defined market dataset. P50 is the median. P75 is the point at or below which roughly 75% of observations fall.

Example: For a matched role, P50 might be $120,000 and P75 $135,000. Paying at P75 means targeting $135,000 in that dataset.

Put it to work: Ask which roles, organisations, locations and pay components sit behind the number. “We pay at P75” needs that context to mean anything.

3. Salary band

A salary band sets a minimum and maximum for a role or group of roles. It gives an organisation a structure for making pay decisions and explaining progression.

Example: A band might run from $100,000 to $140,000, with a midpoint of $120,000.

Put it to work: Be clear about what determines someone’s position within the band. Reaching the maximum shouldn’t depend on who asks most often.

4. Compa-ratio

Compa-ratio compares someone’s salary with a reference point, commonly their salary band midpoint.

Formula: Salary ÷ band midpoint × 100.

Example: A $108,000 salary against a $120,000 midpoint gives a compa-ratio of 90%.

Put it to work: Use it to identify pay positions worth reviewing. Below 100% doesn’t automatically mean underpaid: the band’s design, role requirements and the employee’s capability still matter.

5. Range penetration

Despite the awkward name, this simply measures how far a salary sits through its band, from minimum to maximum.

Formula: (Salary − minimum) ÷ (maximum − minimum) × 100.

Example: At $108,000 in a $100,000–$140,000 band, range penetration is 20%.

Put it to work: Notice that the same employee has a 90% compa-ratio and 20% range penetration. One compares pay with the midpoint; the other measures position across the whole band. Neither percentage is a performance rating.

6. Pay compression

Pay compression occurs when pay differences become small between employees whose experience, proficiency or responsibility would otherwise justify a larger difference.

Example: An experienced employee earns $110,000. A new starter who needs substantial training joins at $108,000.

Put it to work: Before approving an offer, look at the people already doing comparable work. Recruitment decisions can change the pay relationships within an entire team.

7. Pay inversion

Pay inversion takes that situation further: a newer or less experienced employee earns more than an established, more experienced colleague in a comparable role.

Example: The new starter joins at $118,000 while the experienced colleague remains on $110,000.

Put it to work: Investigate the reason. Different skills or responsibilities may explain it. An urgent hire followed by years of small increases for everyone else deserves closer attention.

8. Internal equity

Internal equity considers how pay compares across roles of similar value within your organisation, allowing for relevant differences in responsibility, skills and contribution.

Example: Two employees doing comparable work at the same level receive substantially different pay. Can you explain that difference using consistent criteria?

It also matters to distinguish this from an organisation-wide gender pay gap, which compares women’s and men’s earnings across the workforce. Paying consistently within roles can coexist with a gap driven by who holds higher-paid positions.

Put it to work: Examine both individual pay relationships and the broader workforce picture. That visibility is central to why I built equidi.

9. Market adjustment vs merit increase

A market adjustment addresses someone’s pay position relative to the external market. A merit increase recognises performance.

Example: An employee might receive $5,000 to address a market shortfall and a separate $3,000 increase for performance.

Put it to work: Explain each component. Someone should understand whether their increase reflects a market correction, their contribution, or both.

10. Short-term and long-term incentives

Short-term incentives, or STIs, usually reward results over a year. Long-term incentives, or LTIs, operate over several years and often involve shares or rights subject to conditions.

Example: A 15% target STI on a $120,000 base salary is an $18,000 target opportunity. The actual payment depends on the plan design. An LTI might vest after three years if its conditions are met.

Put it to work: Separate the opportunity offered from the value ultimately received. That distinction is especially important when comparing executive remuneration.

Understanding these terms gives you better questions to ask. The next step is being able to answer them for your own workforce.

Can you explain why someone sits where they do in their band? Whether your market comparisons match the actual role? Where a pay decision could widen an existing gap?

These are the questions behind both businesses I’ve built.

CompAce helps you benchmark roles, build salary structures and manage pay reviews. Equidi helps you understand pay gaps, explore what drives them and track action.

Want to put the playbook to work?

Start your CompAce free trial to explore how you can benchmark roles, build salary bands and make more confident pay decisions. Prefer a walkthrough? Book a demo with me!

To understand your organisation’s pay gaps and where to take action, start your 30-day Equidi trial.

If you’re unsure where to start, get in touch. Tell me the pay question you’re trying to answer, and we can start there.

Article by Natalie Flynn Founder of equidi and CompAce.

All salary figures are illustrative.