Compensation Glossary
Welcome to ERI SalaryExpert's compensation glossary, your resource for commonly used terms, formulas, and phrases related to compensation.
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.
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ERI SalaryExpert was launched in 2000 by ERI Economic Research Institute to help organizations and individuals optimize salary planning. Our robust compensation management solution houses the global salary survey data and applications needed to design competitive and effective compensation structures. From benchmarking with reliable market data to analyzing geographic differentials and conducting pay equity analyses, our intelligent platform is an innovative way of merging integral salary survey data with efficient features, all in one system.
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Featured White Paper
Common Compensation Terms and Formulas - January 2026
Find commonly used compensation terms and formulas for your reference when planning compensation.
Ready to Streamline Your Compensation Strategy with Us?
Discover how our Assessor Platform can help you attract top talent, stay on top of market trends, and set your organization up for success, all in one platform.
Try a Free Demo
About Us
ERI SalaryExpert was launched in 2000 by ERI Economic Research Institute to help organizations and individuals optimize salary planning. Our robust compensation management solution houses the global salary survey data and applications needed to design competitive and effective compensation structures. From benchmarking with reliable market data to analyzing geographic differentials and conducting pay equity analyses, our intelligent platform is an innovative way of merging integral salary survey data with efficient features, all in one system.
Learn More