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Abbott-Langer & Associates Business Glossary

This glossary of business definitions contains over 2,000 business terms used in compensation and benefits administration. Continually updated, this specialized business dictionary focuses on definitions of Human Resources terms and business terms.

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Cafeteria Plan

Also known as a flexible benefit plan, offers each employee several choices as to the types and or amounts of organization benefits. An employee is given a set amount, and he or she can choose how it is spent.

Call Back Pay

A guarantee of pay for a minimum number of hours when employees, who are not scheduled to work and who are not on call, are called back to their work. They receive pay for at least the minimum number of hours established, even if they do not end up working up to those many hours.

Call In Pay

This is the guaranteed pay for a set minimum amount of time for employees who show up to work at the usual time and for whom there is no work. The employees receive pay for at least the specified minimum number of hours, even if they did not work at all.

Call Option

A stock option contract that gives you the right to purchase a specified quantity of stock at a specified strike price by a specified expiration date.

Canada Pension Plan (CPP)

This plan applies to all Canadian provinces (with the exception of Quebec). This plan primarily provides for retirement and long-term disability income benefits to residents.

Canadian Council Of Insurance Regulators (CCIR)

Similar to the National Association of Insurance Commissioners in the United States, this Canadian organization of provincial insurance regulators meet regularly to discuss insurance matters. The Council also develops model insurance legislation, which it encourages legislatures to adopt.

Canadian Life And Health Insurance Association (CLHIA)

Most of the life and health insurance companies in Canada belong to this Association. Their main responsibility is to conducts research on insurance issues and to promote the best interests of the insurance industry. The CLHIA is the main source of information about the life and health insurance industry in Canada.

Canadian Life And Health Insurance Compensation Corporation (CompCorp)

This is a federally incorporated, nonprofit company established by the Canadian Life and Health Insurance Association (CLHIA) in order to protect consumers against loss of benefits in the event a life or health insurance company becomes insolvent.

Canadian Method

A Canadian prescribed method for the calculation of modified net premiums and reserves.

Cancelable Policy

An individual health insurance policy that can be terminated at any time by the insurer. See also CONDITIONALLY RENEWABLE POLICY, GUARANTEED RENEWABLE POLICY, and OPTIONALLY RENEWABLE POLICY.

Cap

The total incentive opportunity a sales representative can earn in a given period. Sometimes a cap is referred to as the maximum, the lid, or the ceiling.

Capacity

The term used to describe the largest amount of insurance an insurer or a reinsurer is willing or permitted to underwrite. The term may refer to an insurer's capacity for one individual or to the insurer's capacity for all its business.

Capital Employed

The value of all the assets employed in the course of business (e.g. equity and preference capital, fixed and current assets, and gross borrowings). Sometimes used as a measure of performance for executive incentive plans. Most commonly used in the calculation of Return on Capital Employed. See also RETURN ON CAPTIAL EMPLOYED.

Capital Expenditures

Monies spent to acquire or upgrade physical assets such as buildings and machinery.

Capital Gains Taxation

A tax levied on profits realized from the sale of a capital asset, such as stock and real estate.

Capitation Basis

A health insurance payment method whereby a fixed amount of money is paid per person to cover all services, without regard to the number or nature of services rendered to each person within a set period of time. It is the provider who bears the financial responsibility to coordinate patient care within the fees or capitated rate for all patients. See also FEE SCHEDULE BASIS.

Captive Agents

Agents who work exclusively for one insurance company and who may not represent another company. See also EXCLUSIVE AGENTS.

Captive Insurance Company

Usually set up and owned by a parent company for the purpose of insuring the parent company's exposures to loss. This type of insurance company provides insurance coverage at a lower cost than is available by going through the general insurance market. A captive insurance company may be either a non-admitted, nonresident, or foreign insurer. May also provide reinsurance to a self-insure or a domestic company.

Career Agent

A full-time commissioned salesperson who works out of an insurance company's field office, holds an agent contract with that company, and sends most or all of his or her business to that company. On occasions, a career agent may broker business with other companies.

Career Average

A method used to calculate payout to a retiree in a defined-benefit pension plan by determining average annual salary. Years where less than 1,000 hours were worked may not always be included in the calculation.

Career Average (Career Earnings) Benefit Formula

This describes a formula by which retirement benefits are calculated, based on compensation for the entire amount of time in the plan. See also DEFINED BENEFIT FORMULA.

Career Average Pension

A formula which basing retirement benefits on actual credited compensation of an employee during his or her total period of service or participation.

Career Ladder

This represents a series of outlined levels within a job category, where the nature of the work is comparable (e.g., engineering). The different levels represent the organization's requirements for increased skill, responsibility, and knowledge as the employee advances.

Carpooling

Carpooling is a program whereby employees are encouraged to share rides to work so as to reduce traffic problems, preserve the environment, and save money.

Carry Over Provision

Found in most medical expense policies, this provision permits you to apply both eligible in-network and out-of-network expenses incurred during the last three months of the calendar year to the next year's deductible or out-of-pocket maximum.

Case Management

A cost-containment program designed to identify alternate, less costly methods of treatment for seriously ill patients without sacrificing the quality of care a patient receives. Also called large claim management or medical case management. See also CATASTROPHIC CLAIM MANAGEMENT.

Cash Balance Pension Plan

An established benefit plan resembling a defined contribution plan. The characteristics are usually annual or monthly account additions made at a predetermined rate (e.g., a percentage of pay). These contributions grow at a stated rate. Upon retirement or withdrawal, the participant may receive the full account balance in one lump sum, so long as the benefits are fully vested. The account balance may be used to purchase an annuity.

Cash Basis Compensation

Cash basis compensation implies two things. The first is that the person is paid cash and not in kind, such as room and board or transportation. The second is that the company records labor expenses as they occur or are paid, and not as accrued.

Cash Flow

The amount paid out throughout the entire year, along with all the incidental changes. The timing of salary changes affects the actual monies paid out, pay period by pay period.

Cash Flow Statement

A financial statement that highlights monies actually received and paid out within a certain time frame (typically a year). It represents the differentials in the cash and cash equivalents account for the period in question.

Cash Option Exercise

The fact of paying cash for the price of an option exercise of a number of shares exercised in order to purchase the shares.

Cash Or Deferred Arrangements

A program in which employees have the option of taking cash or placing some of their earnings into an established trust on a pre-tax basis.

Cash Payment Option

A life insurance policy dividend option under which benefits are paid to policy owners in cash.

Cash Premium Accounting System

Used for industrial insurance. Under this system, the broker directs the home office of the actual amount collected per policy. The home office then updates the policy records to mirror these collections and prepares new collection records.

Cash Refund Option

A type of the life income option with refund, which specifies that any proceeds remaining when the beneficiary dies is to be paid in a lump sum to the contingent payee. Compare to the installment refund option.

Cash Surrender Value

The amount available in cash when the owner of a policy voluntarily terminates the policy before it matures or becomes payable by death.

Cash Surrender Value Option

In a life insurance policy, this is the amount of money, adjusted for factors like policy loans or late premiums, which would be received by the policy owner if he/she were to cancel the coverage and surrender the policy to the insurance company. Also known as the net cash value.

Cash Value

In a life insurance policy, this is the amount of money, before adjustments, that are made for factors such as policy loans or late premiums, that the policy owner will receive if the policy owner allows the policy to lapse or cancels it and surrenders the policy to the insurance company. Cash values are a feature of most types of permanent life insurance. Compare to CASH SURRENDER VALUE. Also known as INSIDE BUILD-UP and policy owner's equity.

Cashless Option Exercise

The exercise of an option by an individual through an outside broker or dealer. The broker, in effect, makes simultaneous purchases and sales of the underlying option shares and delivering cash or stock to the individual for the options. The individual does not therefore have to actually come up the purchase price.

Catastrophic Claim Management

A cost-containment program designed to identify alternate, less costly methods of treatment for seriously ill patients without sacrificing the quality of care a patient receives. Also known as catastrophic claim management, large claim management, or medical case management.

Causal Relation Requirements

Proof required by statute in Kansas, Missouri, Rhode Island, and Puerto Rico to show that the facts not accurately represented in an insurance application were material. In other words, that the misrepresentation affected the insurers decision to insure against that particular loss, to whatever extent.

Ceding Company

The definition of reinsurance is the transfer of part or all of a risk insured against to another insurance company. The transferor of the risk is known as the 'ceding company' while the transferee (receiver of the risk) is known as the 'assuming company' or the REINSURER.

Central Index Key (CIK)

A code used by the Securities and Exchange Commission's (SEC) computer systems to identify corporations and individual people who have filed disclosure with the SEC. The CIK can be used to find a specific company or fund on EDGAR.

Central Tendency

In statistics, central tendency is a measure THAT indicates the middle (mean, median or mode) of a data distribution.

Central Tendency Error

The end result when evaluators rate individual performance of subordinates toward the center of a performance scale, implying the assumption that everyone's performance is about average or that different performance levels are not significant.

Centralization

The extent to which a central group controls the determination of and the practice of administration of salaries, most commonly, across organizational units. The degree of centralization or decentralization depends on the CULTURE an organization.

Certain Payment

Payment not based on any condition. This is payment that will be made no matter.

Certificate Of Assumption

In terms of assumption reinsurance, this is a certificate sent to each 'transferor of risk' or 'ceding company' to give the policy owner notice that: (1) the risk had been assumed, and (2) pertinent information about the new insurer, assuming company, or the REINSURER.

Certificate Of Authority

A document that grants an agent power to act for the insurance company. This document comes from the insurer and is given to the agent as proof of his authority. The document not only grants authority but also outlines the extent of that authority. A certificate of authority may be used in any situation where one party grants power to another to act on the first party's behalf.

Certificate Of Indebtedness

A certificate issued by an insurer to the beneficiary of a life insurance policy. This certificate details the minimum interest rate, which is guaranteed, and the frequency with which interest payments will be made.

Certificate Of Insurance

A document given to the insured by the organization insurance plan. This document outlines the type and extent of coverage to which the organization member is entitled and the beneficiary of that coverage. Very often, the certificate will also contain a rundown of the contract terms as they affect individual organization members. See also master contract.

Cession

The act of passing risk to another. The act of ceding. See Ceding Company.

Champus

Health coverage provided by the United States government to members of the armed services.

Chance Of Loss

In insurance terms, this is the likelihood that an event (such as death or injury) will happen.

Change In Control Provision

A clause within a contractual document making provisions for conditions that must be satisfied in the case of a change of control. The change of control does not necessarily have to be a complete change of ownership. It may only be a percentage of the company that changes hands.

Change Of Occupation Provision

An individual health insurance policy clause that provides that the insurer has the right to make amendments or adjustments to a policy's premium rate or benefits available when the insured changes work position or careers.

Changes In Methods Of Accounting

This is a change, which includes a change in the system of accounting of gross income and or deduction, or a change in the way a material item is treated. See also MATERIAL FACT.

Chauffeur Services

Providing an employee with a chauffeur in addition to a car. For tax purposes, the value of the chauffeur is determined separately from the value of the car.

Child Support

There are two instances where an employer may become involved with an employee's Child Support: 1) Where there is a court order requiring the employer to withhold the support payment from the wages of the employee. Under the Child Support Enforcement Amendments of 1984 these payments take precedence over all other garnishment orders. 2) Under the Qualified Medical Child Support Order [QMCS], the child must be covered under the employer's health care plan to the extent that the plan covers dependents.

Church Plans

Church employees are generally exempt from the requirements of ERISA, unless they conduct business other than directly related to the operation of church.

Civil Rights Act

A provision in Title VII of the Civil Rights Act of 1964 that seeks to prohibit discrimination in all areas of employment on the basis of race, color, religion, national origin or sex.

Claim

This is notification given to an insurance company asking for payment under the term of the insurance policy. May also be referred to as insurance claim.

Claim Administration Department

This is the department in a life and/or health insurance company responsible for processing claims. This department also has claim examiners whose duty it is to review claims made, check into their validity and then authorize the payment of benefits to the proper party.

Claim Examiner

An employee who investigates insurance claims for an insurance company. This individual establishes that claims are valid and authorizes payment for these claims, while denying those that are fraudulent or invalid.

Claim Frequency Rate

In terms of health insurance calculations, the claim frequency rate is the anticipated percentage of insured that will make claims against the company and the number of claims they will make during a certain period of time. The claim frequency rate is used to calculate the estimated average cost of claims, which, in turn are used to establish premium rates.

Claim Investigation

A system of operation whereby pertinent information regarding a claim is gathered for the determination of whether or not payment is to be made on that claim.

Claim Reserve

A claim department's estimate of the amount of money needed to pay a claim. The estimate is made with the help of information that the claim department gathers in the course of handling the claim. This information may involve, for example, the extent to which the claim is covered by the policy, the effect of previously paid claims on the amount of coverage available to pay a current claim, and the effect of any applicable reinsurance coverage on the claim.

Claimant

The person(s) making a request, under the terms of an insurance contract, for payment of benefits due.

Claims Base

The claim, employees as a whole, actually incurred in the previous two or three-year period under the same benefits plan.

Claims Procedures

Set procedures, meeting regulatory standards, must be in place and outlined succinctly in plan description for every employee benefit plan. The set procedure must, in no way, discourage or make it unnecessarily difficult for individuals to apply for benefits. The procedure must also provide participants with a policy for appeals (within a specific time frame).

Class Beneficiary Designation

A way of classifying certain beneficiaries as one or as a group (e.g. children of the insured).

Classification Control

Any procedure set up for the review and assignment of jobs to established classes / grades.

Classification Method Of Job Evaluation

A methodical system of job evaluation, where the focus is on the actual job as opposed to the individual carrying out the job. This evaluation method, therefore, determines the skills required to perform the job and measures the degree of difficulty of a particular job in comparison with another job through job analysis.

Clean-Up Fund

This is a one-time life insurance benefit existing for the sole purpose of paying the insured's final expenses and unpaid debt.

Cliff Vesting

When, after a specified number of years of service, all benefits accrued vests without any gradual vesting before the set time.

Closed Contract

An insurance policy in which the condition of the policy and the application constitute the agreement, in its entirety, between the policy owner and the insurer. Contrast with OPEN CONTRACT.

Closing

The finalization of the sale of property. Used to describe the securing of commitment from a prospective buyer by requesting and obtaining the prospect's agreement to submit an application for the amount recommended in the sale proposal.

Clubs

Employers may find it useful to pay for an employee's membership in clubs and professional organizations. Reasons for doing so would include the contacts made by the employee, the knowledge gained, the community perspective, ore growth of the employee.

CMSA

Consolidated Metropolitan Statistical Area (CMSA). See METROPOLITAN STATISTICAL AREA (MSA).

Coefficient of Determination

The ratio of the explained variation to the total variation is called the coefficient of determination. This is a measure of predicitive reliability, and is defined as the correlation coefficient squared.

Coinsurance

Found in most health insurance policies, this is an express requirement that the insured pay a particular percentage in excess of the deductible and of all eligible medical expenses.

COLA

The term COLA can be used in two senses. 1) A Cost-of-Living Adjustment in which wage rates are periodically adjusted, usually upward, based upon changes in the cost of living. These are often found in collective bargaining agreements. In addition, they constitute large increases in government programs, such as social security. 2) A Cost-of-Living Allowance is a payment to an expatriate employee for differences in living costs between the host and home country of the employee.

Collateral Assignment

This is when someone designates a policy’s death benefit OR cash surrender value TO a creditor AS security WHEN applying FOR a loan. IF the loan does NOT get repaid, the policy proceeds go TO the creditor up TO the outstanding loan’s balance. The policy’s beneficiary receives the remainder. Life insurance IS acceptable security TO lenders because it IS freely assignable.The lender IS guaranteed the money IF the borrower dies before repaying the loan.

Collective Bargaining

Agreements between employees and employers outlining acceptable work conditions including working hours, vacation, holidays, and termination of service guidelines. These employees are typically part of a bargaining unit represented by a union.

Collective Bargaining Agreements

Agreements between employees and employers outlining acceptable work conditions including working hours, vacation, holidays, and termination of service guidelines. These employees are typically part of a bargaining unit represented by a union.

Collectively Bargained Plans

Collectively bargained plans may have many features not allowed in other forms of qualified plans. A great deal of flexibility is written into the laws allowing unions and management to design plans that are in keeping with the circumstances of the particular situation.

Combination Clause

In a disability insurance policy establishing when the definition of total disability changes from the inability to perform a certain job to the inability to perform any job.

Combination Company

A life insurance company that sells both industrial and ordinary insurance policies.

Combination Dental Plan

This kind of dental plan contains both the features of the scheduled and nonscheduled plans. Generally, the combination plans cover preventative and diagnostic procedures on a nonscheduled basis and other services on a scheduled basis.

Combination Pay Plan

Describes a pay plan that is in two parts. The first is a base salary and the second is one or any combination of cash incentive elements (e.g. commission and/or bonus).

Combination Plan

This is a type of pension plan that adopts an approach whereby part of the funding (the employer's contribution) is allocated and used to acquire life insurance policies with cash values. The other part of the funding is unallocated and is placed in a conversion fund. Consider also ALLOCATED FUNDING and UNALLOCATED FUNDING.

Commission

Commissions may be defined as payment to employees or representatives, usually in sales, of a set percentage of the selling price of the product.

Commissioners Method

Established by the United States, this is a system used to calculate modified net premiums and reserves for life insurance.

Common Accident Provision

Several definitions: 1) In terms of medical insurance policies, this is a common clause, which specifies that: should two or more members of the same family be injured in the same accident, they will only be subject to one deductible. (2) In terms of many voluntary organization accidental death and dismemberment policies, this is a clause that provides that the amount which becomes payable by an insurance company is limited to a designated maximum for a situation where more than one employee is killed or hurt in one accident.

Common Disaster Clause

This is an insurance provision requiring that the beneficiary survive the insured by a particular length of time for the benefits to pass to him/her. In a situation where the beneficiary does not survive the insured by the specified amount of time, the benefits will be paid as if the primary beneficiary predeceased the insured.

Common Law Employees

A common law employment relationship is deemed to exist in a situation where the person/company for whom services are being rendered the right to direct/control the person rendering that service. The said control must go beyond the employer having the right to control what the employee does. It must include the right to instruct the employee how to do it.

Common Review Date

Also known as focal point, this is the date on which an entire organization will receive increases in pay. A company may, therefore, affect increases for all employees on June 1s. (Those employees who were hired half way through a cycle will normally have their increases prorated.)

Common Shares

Used to describe the units of equity ownership in a corporation or units of ownership in a mutual fund. Usually, these will have voting rights and sometimes dividends attached to them. The appreciation and the dividends are neither fixed nor guaranteed.

Common Stock

May be a share in a publicly traded or a privately held company. Holders of common shares have voting and dividend rights. See also COMMON SHARES.

Community Rated

Used to describe an insurance plan in which the risk is shared equally between the members. Also the premium rebate is based on the overall community's health and that of the individual members. Also allows for an increase in the insured benefits.

Community Rating

Term used to describe the application of the same premium rates for a particular group without the consideration of past loss experience or their potential for loss.

Commuted Value

In Canada, this is based on a variety of factors (interest rates, assumptions of mortality, pension entitlements and so on). This is a term used to refer to the current value of all future income payments from a pension plan. This is typically calculated and provided by the pension administrator upon request.

Commuting

Commuting is travel between the employee's residence and regular place of business and is considered a non-deductible personal expense. However, transportation expenses between two specific business locations during the workday are considered a deductible expense.

Company Cars

Excluded from Income. In general, when an employer provides a vehicle to an employee for business purposes, the value of the vehicle may be excluded from the employee's income. However, if the employee uses the vehicle for personal as well as business reasons, only the portion of the car's value that can be attributed to business use may be excluded.

Company Retention Method

A means by which the costs of various life insurance policies are compared. The cash values, dividends and yearly premiums are weighted by the chances they will be paid. Consider also comparison methods.

Comparable Worth

This is a doctrine that states that jobs have an inherent value. As such, men and women who perform jobs of the same inherent value should be similarly compensated. Before disparate treatment of protected classes became an issue, this term was used for both external competitive comparisons and for internal equity decisions. Today comparable worth focuses special attention on pay practices that may match the market or perpetuate past internal practices, but still create or perpetuate discrimination in the treatment of those holding female-dominated jobs whose content is similar but not equal to that of male-dominated jobs. Comparable worth means that women should be paid the same as men, excepting allowable differences (i.e. seniority plans, merit plans, production-based pay plans, or different establishments or locations).

Compa-Ratio

The ratio of an employee's actual salary (the numerator) to the midpoint of the applicable (the denominator) salary range. To calculate an individual's compa-ratio, divide the actual salary by the midpoint of the assigned salary range.

Compensable Factor Degree

In quantitative job evaluation plans, this is a term used to describe yardsticks used to measure and identify particular levels of compensable factor. Typically, there are about seven degrees for each factor.

Compensable Factor Weight

In a job evaluation plan, this is the percentage, weight or influence, each compensable factor in a job is assigned.

Compensable Factors

Any factor used to provide a basis for judging job value in a job evaluation scheme. Typically, compensable factors include effort, skill needed in order to perform a job, and responsibility. These factors are used to establish job worth when creating a job hierarchy in order to set a wage structure.

Compensation

A methodical approach to assigning a monetary value to employees in return for work performed. Compensation may include any or all of the following: base pay, overtime pay, commissions, stock option plans, merit pay, profit sharing, bonuses, housing allowance, vacations and all benefits. This is referred to as remuneration in some foreign countries.

Compensation Committee

A high level committee (board of directors level) that approves pay and incentive award programs where senior management of the company are concerned.

Compensation Committee Report

A requirement of the Securities and Exchange Commission (SEC), this is an annual report to made by the Compensation and Benefits Committee. The Compensation and Benefits Committee has the responsibility for establishing compensation for a company's executives as well as for other compensation programs. Members may not be employees of the company, nor may they be involved with the executive compensation programs. The Committee takes into account information provided by independent compensation consultants.

Compensation Costs

This describes the overall cost to a company, including unforeseen and unrealized cost effects of current compensation decisions concerning the total compensation program (base pay, incentive programs and benefit plans).

Compensation Limits For Officers Of Corporations

Executive pay in corporations is limited in small measure. The amount of compensation paid to executives that is deductible or reimbursable to the company is no more than $1 million in compensation paid to an individual chief executive officer or the four other highest compensated officers of a corporation.

Compensation Reimbursement Agreement

This agreement requires employees who receive compensation that’s disallowed as a deduction to the corporation to return the funds to the corporation.

Compensation Strategy / Philosophy / Policy

This describes the intrinsic guiding factor for the application and administration of a compensation program. Such a policy would, of course ensure that a compensation program (which would include benefits and pay) would align with the company philosophy.

Compensatory And Punitive Damages

The intent of an award of compensatory damages is to compensate the plaintiff for loss suffered. To re-instate the plaintiff to the position in which they were before they suffered the loss. The intent of an award of punitive damages is to both punish the defendant and to act as a deterrent to others from similar behavior. Employees wrongfully dismissed may seek compensatory and punitive damages.

Competency

In terms of jobs, competency is an underlying behavior, skill, or characteristic of an employee. It is a good indicator of success.

Competitive Compa-Ratio

The term compa-ratio indicates how employees of a company are paid in comparison with the value of their jobs in the market. In other words, how the market pay ratio compares to the company's midpoint range in salaries of the same category.

Competitive Pay Data

Information from salary surveys of competing organizations' pay practices. This data allows compensation managers to set pay that is at, above, or below market level, depending on their organizations' pay strategies.

Competitive Pay Policy

Usually, this is a game plan that a company has, whereby they use the results of labor market surveys as means of evaluating and determining how to set pay levels.

Completion Bonus

Usually only applicable to an employee with an expatriate status, this is a bonus / lump sum given after the successful completion of an assignment. The objective is to provide incentive for the expatriate to continue with the assignment until its completion.

Compound Interest

Also known as the value of money over time, this is interest that is earned not only on the initial capital, but also on interest that has accrued over time.

Compound Salary Growth Rate (CSGR)

This term is employed to describe the growth rate, expressed as a percentage of a salary over a period of time.

Comprehensive Health Plan

This is a term used to describe a medical insurance program providing coverage of most medical expenses within the one policy. There is usually an annual deductible, which must be met before benefits become payable.

Comprehensive Major Medical Insurance

Health insurance coverage with a combination of both a major medical policy and a hospital expense policy.

Compressed Work-Weeks

A term used to describe any alternative workweek schedules (10 hour days or more complex rotation resulting in extended weekends).

Compression

Wage compression occurs when a new hire is paid the same as or more than employees with more seniority. It also occurs when employees are paid more than their supervisors. Often this occurs when the external labor market conflicts with a company's internal wage structure.

Compulsory Retirement Age / Date

This describes the age and or date at which employees must retire. Since the amendment to the Age Discrimination in Employment Act of 1967 (ADEA), mandatory retirement, which is based only on age, has mostly been prohibited.

Computer-Aided Job Evaluation

In job evaluation, a computer may be used to manipulate statistical data in order to rank jobs.

Computers Employer Provided

When it is to their benefit, employers provide computers for employees to use when working at home. Depending on the amount of personal use by the employee and the family, the benefit may not be considered taxable compensation to the employee.

Conditionally Renewable Policy

This is a health insurance policy that gives the insurer the right to refuse to renew the policy for reasons outlined in the policy at the end of a premium payment period. Compare with CANDELABLE POLICY, GUARANTEED RENEWABLE POLICY, and OPTIONALLY RENEWABLE POLICY.

Confidence Interval

This is a range that’s computed for the observed value that should include the “real” value 90% or 95% of the time. To determine this range or confidence interval, you must first compute the standard error of the value.

Confirmation Certificate

Issued to a beneficiary of a life insurance policy, this certificate outlines the amount of life insurance proceeds in a retained asset account and other pertinent information.

Conservation

An attempt by insurer's or their agent to prevent a policy from lapsing.

Consolidated Omnibus Budget Reconciliation Act Of 1985 (COBRA)

In the United States, this is a statute that mandates that employers sponsoring organization health plans continue to offer coverage under the organization plan to employees, their spouses, and dependent children who lost coverage due to the occurrence of a qualifying event (e.g. reduction in work hours, many types of termination of employment, death, and divorce).

Consolidated Subsidiary Accounting

An accounting method used for subsidiaries where the ownership is more than 50%. See COST METHOD.

Constant Population With Constant Midpoints Model

The first approach used in determining salary increase budgets. In this approach, there is no information on any planned promotions, new hires, terminations, reclassifications, etc. It is assumed, that the status quo is maintained.

Construct Validity

The extent to which a measurement reflects the specific underlying construct it purports to assess. Construct validity requires gradual accumulation of evidence from a variety of sources.

Constructive

A tax principle for the determination of timing of tax liability, where there is a deferred payment. The law states that tax is to be imposed at the time when an individual reaches out to take the benefit.

Constructive Delivery

Legally equivalent to physical delivery of a policy. Constructive delivery occurs: (a) when an insurer parts with control of the policy with the intention that the insurer will be unconditionally bound by the policy as a completed instrument, or (b) when the policy is physically delivered to an agent of the applicant.

Constructive Distributions

If a corporation pays a shareholder-employee a salary that’s unreasonably high considering the services actually performed, the IRS may treat the excessive part of the salary as a constructive distribution of earnings to the employee-shareholder. The employee-stockholder’s wages are reduced, and the difference is treated as a dividend. This creates increased corporate taxable income and tax liability for the corporation since the reduced wages increase the corporation’s earnings but the cash to pay the additional tax is gone. There are also penalties and interest to be paid on the underpayment. To avoid this compound effect, the corporation and shareholder-employee can enter into a Compensation Reimbursement Agreement.

Consultants

The use of non-employee professionals by companies provides flexibility in the workforce. Consultants can undertake and complete projects without increasing the workforce of the organization.

Consumer Price Index (CPI)

CPI measures the change in consumer prices, as determined by the Bureau of Labor Statistics' monthly survey. Many pension and employment contract changes are tied to changes in consumer prices. This protects employees against inflation and reduced purchasing power.

Consumer Report

The communication of any information relating to a person's credit-worthiness, capacity and or general reputation by a consumer reporting agency.

Consumer Reporting Agency

Any person or body that provides consumer reports on a regular basis and makes them available for profit or non-profit basis, to another. Known also as credit reporting agency. See also FAIR CREDIT REPORTING ACT (FCRA).

Content Validity

The extent to which a measurement reflects the specific intended domain of content. Stated as a question: Do the ... thoroughly cover all relevant aspects of the conceptual domain they are intended to measure?

Contestable Period

A pre-established period (usual two years) within which the insurer may contest the validity of a life insurance policy. Contrast with incontestable clause.

Contingencies

Events that are likely but not certain to happen. Insurance premium rates and insurance companies' willingness to accept risks are based partly on the degree of likelihood or the probability that certain contingencies will or will not happen.

Contingency Reserve

A fund or reserve set up by an insurance company of its own volition to cover or help to cover any unusual or unexpectedly large claim amounts.

Contingent Annuity Option

An option under which an employee may elect to receive, under certain conditions, a reduced amount of annuity with the same income, or a specified fraction, to be paid after his death to another person designated as his contingent annuitant, for that person's lifetime. The contingent annuitant is usually the husband or the wife. (See JOINT AND SURVIVOR ANNUITIES.)

Contingent Beneficiary

Should the person designated to receive the proceeds of life insurance policy, predecease the person whose life is insured, then the contingent beneficiary becomes the beneficiary. May also be known as the secondary beneficiary.

Contingent Compensation

Similar to a BONUS, this is a payment or benefit that depends on the behavior and or performance of an employee.

Contingent Payee

This is the person or party who will receive the proceeds of a life insurance policy remaining to be paid under an option of settlement at the time of the original payee's death. May be contrasted with the CONTINGENT BENEFICIARY, whose rights end when the insured dies. Also known as the successor payee.

Contingent Payment

A payment that will be made upon the occurrence of a predetermined event. For instance, this is a payment that will only be made at a certain date, if and only if, the recipient is alive.

Continuance Tables

Tables containing morbidity statistics that indicate the distribution of claims according to the duration of the illness or amount of expense involved in the claims.

Continuation Coverage

COBRA and other regulations provide for health care continuation of coverage for employees who have terminated or been terminated from their employer.

Continuing Education (CE)

An annual education requirement for many professionals to continue to receive certification in their respective field of work. CE credits are usually governed by various State Boards.

Continuing Legal Education (CLE)

Continuing education credit that attorneys are required to earn each year. CLE accreditation is governed by state boards. The ERI Distance Learning Center provides CLE credit for selected courses. See our Course Credit Map for more information.

Continuing Professional Development (CPD)

In the United Kingdom, this is activity beyond initial training, aimed at improving skills, knowledge and understanding, whether by online courses, day seminars, spare-time study, etc. ERI provides CPD credit for UK counselors (attorneys). See our Course Credit Map.

Continuing Professional Education (CPE)

This term is used generally for CPAs. CPE credits are governed by the National Accounting Standards Board (NASBA) located in Nashville, except for Illinois and Nebraska, which are governed by their respective State Board.

Continuous-Premium Whole Life Insurance

Also known as straight life insurance, this is a species of whole life insurance in which premiums are payable right up until the death of the insured / throughout the whole life of the policy.

Contract Of Indemnity

Under this kind of contract, the amount of benefit to be paid is strictly based upon the amount of loss suffered financially (determined at the time of loss). Insurance contracts are typically contracts of indemnity. Their object is to reinstate the beneficiary to their position before their loss. See VALUED CONTRACT.

Contracts

In common law, employment is viewed and treated as a contract, and as such is subject to all the usual laws of contracts. Consideration must, therefore pass from one party to another for a contract to be considered to be binding and for the statute of frauds to apply.

Contributed Surplus

Peculiar to Canada, this is the amount in excess of the par value paid by the owners of the stock, minus the number of dividends paid to the owners of the stock.

Contribution Limit

In a defined contribution pension plan, this is the maximum allowed by law to be added to the participant's account. The annual contribution is inclusive of employer's contributions.

Contribution To Surplus

In mutual insurance companies, this is the income that results when an insurance company makes more money than is required to pay for the cost of actually providing insurance.

Contributory Benefit Plan

A benefits program requiring that employees contribute part (or all) of the cost, and the employer covers any remainder.

Contributory Organization Insurance

Any organization insurance plan that calls for the insured to contribute a portion of the cost of the organization insurance coverage. To be contrasted with NONCONTRIBUTORY ORGANIZATION INSURANCE.

Contributory Plan

Any pension or employee benefit plan in which plan participants can or must make contributions to the plan out of their own pockets.

Control Point

Within a given salary range, this is the point that represents the desired pay for a completely qualified and satisfactory performer (in a position or organization of jobs at the midpoint of the salary range).

Controlled Foreign Corporation

Treated by the IRS as a U.S. tax reporting entity because of voting control or ownership of U.S. citizens, this is really an offshore company. Technically it is defined as a foreign corporation in which U.S. person(s) has 10% or more ownership or voting control.

Controlled Groups

Usually refers to a group of corporations. One is known as the 'parent' company and owns a stock interest in at least one (if not more) other corporations, known as 'subsidiaries'. May also be a 'brother- sister' type association, whereby two or more corporations are owned by the same person or groups of persons. A controlled group may also consist of a combination of the two types of groups (in which case it is known as a 'combined controlled group').

Convention Blank

Filed annually to their respective state insurance regulators, this is a financial statement required of all United States insurers.

Conversion Fund

A fund where all the employer's unallocated contributions to a combination plan accrue.

Conversion Privilege

May be defined in two ways: (1) The right, which an individual has, under certain circumstances to change coverage (e.g. change from an individual term policy to an individual whole life policy). (2) The right of an individual covered by an organization policy to change his or her coverage under an individual insurance policy. Typically, this kind of conversion may be made when a person leaves the group or the benefits are downgraded or ended for a certain group of people.

Convertible Debenture

A bond that may be converted, at the option of the owner, into common shares of the issuing company at certain times and at specific prices.

Convertible Preferred Stock

May, at the owner's option, be converted at specific times into a certain amount of common stock of the issuing company.

Convertible Securities (Such As Debentures Or Preferred Stock)

Convertible securities combine aspects of both stocks and bonds, thus creating a truly 'best of both worlds' investment. Convertible securities are a bonds, debenture or preferred stock exchangeable which, at the holder's option, may be exchanged for the common stock of the issuing company.

Convertible Term Insurance

Term life insurance which may: 1) be converted into cash value insurance (USA) or may be the conversion of term assurance into an endowment assurance (UK); 2) converted into a permanent insurance policy at the option of the owner without further evidence of insurability.

Coordination Of Benefits (COB) Clause

This is a clause included in health insurance policies that states that benefits will not be paid for amounts that are already covered by other organizational health insurers. The object of a coordination of benefits clause is to ensure that benefits from all eligible sources do not exceed 100% of permissible medical expenses. This also prevents an individual from profiting from duplicative organization health care coverage. Consider also OVER INSURANCE PROVISION.

Core Benefits

These are the basic standard benefits that are offered to every employee (e.g. life insurance and health care).

Corporate Culture

The shared beliefs, norms and assumptions of an organization, which enable it to adapt to its external environment and to integrate its employees and units internally.

Corporate-Owned Life Insurance (COLI)

The purpose of COLI is to enable a corporation to insure the lives of their highly compensated / executive level employees (beyond what may be available through qualified plans). The company and the executive typically share ownership and the beneficiary interests.

Correlation

Several definitions: 1) In statistical terms, this is the simultaneous increase or decrease of two numerically valued random variables. 2) In lay man terms, this is a word used to describe some kind of association.

Corridor

In order to qualify as life insurance for income tax purposes, a specific level of pure insurance protection, which is in excess of the accumulated value, must be maintained. It is this pure insurance coverage that is known as corridor.

Corridor Deductible

Peculiar to the health insurance industry, this is when a major policy has paid up to the entire amount of the benefits to the insured party and there still exists some remaining expenses. This additional expense must be shouldered by the insured party before any further coverage becomes available.

Cost Comparison Methods

A means by which cost of various life insurance policies are compared by calculating the cash values, dividends and premiums yearly and weighting them by the chances that it will be paid.

Cost Containment

A plan whereby a company / organization attempts to minimize rising costs of health and welfare benefits by putting into effect programs that focus on cost effectiveness.

Cost Method

An accounting method used by affiliated companies, where the percentage of ownership is not more than 20%. Compare with EQUITY METHOD.

Cost Of Capital

An economic concept that may be defined in various ways. 1) A discounted rate equating the market value of securities with the current value of cash flows to the security owners. 2) A discount rate equating market value of securities to the current value of the net operating income of a company, after tax. 3) May also refer to minimum rate of return, which must be assumed of a possible investment for the market value of the company not to be affected.

Cost Of Goods Sold

Determined by subtracting ending inventory from goods remaining and available for sale (purchases vs. beginning inventory).

Cost Of Increase In Current Year

The eligible payroll multiplied by the average increase, adjusted to reflect the percent of the year the increase is in effect.

Cost Of Increase In Future Year

Eligible payroll multiplied by the average increase.

Cost Of Labor

The process of establishing external pay practices, where information on labor market costs (total compensation amounts) are obtained from labor market competitors and relied upon when determining target total compensation opportunity.

Cost Of Living

The cost of purchasing goods and services, as determined by the demand and supply of goods, services, and property. Typically, these costs are determined by a standard packages of goods.

Cost Of Sales

In terms of sales compensation, the cost of sales is a subjective measure of internal costs. It reflects an 'ability to pay' line of thinking for setting target pay levels.

Cost Shifting

A strategy whereby an organization minimizes the cost of making health coverage available, by transferring a portion of the costs or cost increases to someone other than the organization itself (usually to the employee).

Cost-Of-Living Adjustment (COLA)

Several definitions: 1) An across-the-board wage/salary increase or supplemental payment intended to bring pay in line with inflation in order to maintain real purchasing power. 2) An increase in a pension benefit, disability income benefit, or life income benefit to compensate also for inflation.

Cost-Of-Living Index

CPI measures the change in consumer prices, as determined by the Bureau of Labor Statistics' monthly survey. Many pension and employment contract changes are tied to changes in consumer prices to protect against inflation and reduced purchasing power.

Cost-of-Living Levels

The cost of purchasing goods and services, as determined by the demand for and supply of goods, services, and property. Typically, these costs are determined by a standard packages of goods, such as is used by the Consumer Price Index (CPI).

Coupon Advertisement

In Canada, the Superintendent's Guidelines defined in a retirement or welfare plan.

Coverage Rules

Coverage rules govern the admission of employees to participation in a retirement or welfare plan. The term "coverage" also refers to the IRS and rules that are designed to insure that qualified retirement plans benefit a broad cross-section of the employer's lower compensated employees. The rules for determining whether coverage is adequate in this latter sense are: 1. The Average Benefit Percentage Test: A plan will pass this test if: (a) it benefits employees under a classification that the does not discriminate in favor of highly compensated employees (the classification test); and (b) the "average benefit percentage" for lower compensated employees (their plan benefits expressed as a percentage of their compensation) is at least 70 percent of the average benefits percentage for highly compensated employees. 2. Minimum Participation Rule: A requirement for qualified retirement plans that a plan benefit at least the lesser of: (a) 50 employees; or (b) 40 percent or more of all employees of the employer. 3. Ratio Test: This test requires that the plan benefit a classification of employees that does not allow more than a specified difference between the percentage of an employer's highly compensated employees who are covered and a similarly computed percentage for lower compensated employees. For this purpose, the maximum allowable difference is a 70 percent ratio. 4. 70 Percent Test: This test requires a plan to benefit 70 percent or more of all of the employer's lower compensated employees. For this purpose, all eligible employees are considered to benefit under a plan. In a Section 401(k) plan, or a plan to which employees may voluntarily contribute or may receive employer matching contributions, all employees eligible to contribute will be considered to benefit in that portion of the plan.

Covered Compensation

The foundation for integrating pension plan with Social Security benefits. The IRS defines it in its regulation as, the average of the 35 years of Social Security wage bases up to and including the year an employee reaches the age of eligibility (retirement).

Covered Wages

In benefits plans, this represents the amount of employee wages or salaries used to calculate corresponding benefit amounts. For instance, pension calculations are typically based on salary and generally do not include other kinds of variable compensation (e.g., bonuses).

Credibility Percentage

This is the amount of credit or weight given to a group's actual claims experience, when calculating a projection of future claims or a dividend. May also be referred to as the credibility factor. Consider also EXPERIENCE RATING and EXPERIENCE REFUND.

Credit Life Insurance

A term insurance that decreases by nature. The purpose is to pay the balance due on a loan in a situation where the borrower dies before the loan is repaid.

Credit Unions

A credit union is a non-profit cooperative owned and operated by the members to provide financial services to its members.

Credited Service (ERISA Standard)

This is the amount of service hours recognized in a benefit formula for the purpose of determining a pension. Typically, plans will credit one year of service for every year during which a beneficiary works a minimum of 1,000 hours.

Credits

Several definitions: 1) A term used in accounting to describe a payment made towards an amount owed. 2) May also be a transaction between two parties whereby one (creditor/lender) provides money, goods or securities in return for a promised future payment by the other party (debtor/borrower). Transactions such as this normally include the payment of interest to the lender. Contrast with DEBIT.

Credits And The Numerical Rating System

The process of underwriting, that have a positive effect on an individual's mortality rating. Credits are assigned negative values. Contrast with DEBIT and NUMERICAL RATING SYSTEM.

Critical Incident

A method of performance documentation in which the rater keeps a written record of on-the-job incidents and or behaviors, which may be examples of effective or ineffective behavior. The record is subsequently used as a source document to rate the employee. The purpose being to avoid subjective judgments, which feature in most ranking and rating methods.

Cross-Selling

Several definitions: 1) The process of using an existing customer base for one product as prospective buyers for other products.

Culture

The shared beliefs, norms, and assumptions of an organization that enable it to adapt to its external environment and to integrate its employees and units internally.

Cumulative

Several definitions: 1) An arrangement whereby payment not made when it is due is carried over to the next period. 2) May also refer to a type of cycle of performance where the performance of the employee currently holding a certain position is accumulated and expressed over next performance periods.

Cumulative Withholding

Cumulative withholding refers to a method of determining income taxes to be withheld. Wages are added for a particular payroll period to total wages already paid during the year. The aggregate is then divided by the number of payroll periods, and any excess tax is deducted from current payment of wages.

Currency Exchange Rates

The rate at which a certain country's currency exchanges with another. Distinctive changes in currency rates, relative to the base country currency, cause the fluctuation of relative payroll costs of expatriates.

Current Assets

An item on a company's balance sheet that represents the sum of cash (including cash equivalents, accounts receivable, inventory, prepaid expenses and other assets), which could potentially be converted to cash within a year. Contrast with NON-CURRENT ASSET. Compare with CURRENT LIABILITIES and CURRENT RATIO.

Current Assumption Whole Life Insurance

A type of whole life insurance where the cash values are based on the insurer's current mortality, investment, and expense experience. An amassment account is credited with a current interest rate, which changes over time. May also be known as interest-sensitive whole life insurance.

Current Liabilities

A balance sheet item that represents the sum of all monies owed by a company and due within a year. Also known as payables or current debt.

Current Ratio

Current assets divided by current liabilities. This is an indication of a company's ability to meet short-term debt obligations. The higher the ratio, the more liquid the company is. See also RATION and QUICK RATIO.

Current Review

A part of a utilization re-assessment program that monitors an insured's care while the insured is hospitalized and encourages the discharge of an insured from the hospital as soon as their medical condition no longer warrants continued in-patient care.

Current Settlement Option Rates

Settlement option rates mirroring the interest rates presently earned by the insurer.

Curriculum Vitae

A written summary of your education, work history, and professional qualifications. This may be provided to a potential employer or in a court of law where you are to give expert witness testimony.

Curtailment

An amendment to a pension plan significantly reducing plan benefits or employer contributions. Types of curtailments include a reduction of the expected years of service of present employees, and the elimination or reduction of the accrual of certain benefits for some or all of the future services of a significant count of employees.

Custodial Care

Specialized care that is provided for those who cannot care for themselves. Custodial care is usually for the old, the seriously ill, or severely injured.

Customarily and Regularly

Under FLSA, this means greater than occasional but less than constant. It includes work normally done every workweek, but does not include isolated or one-time tasks. (Section 541.701)

Customer Service Department

The department in a life and health insurance company tasked with the provision of assistance to the company's policy owners, agents, and beneficiaries. Customer service specialists are tasked with answering policy owners' questions, assisting them with the interpretation of policy, and responding to questions on the policy coverage itself. They are also tasked with making changes requested by the policy owners, such as change of address, beneficiary designation, and mode of premium payment. The customer service department may also be the department that sends premium notices to customers; collects premium payments; and calculates and processes policy loans, dividends, nonforfeiture options and surrenders. Also known as the client service department, the policy administration department, the policy owner service department or the service and claim department.