Compensation Glossary
Welcome to ERI SalaryExpert's compensation glossary, your resource for commonly used terms, formulas, and phrases related to compensation.
Reasonable Compensation
Reasonable compensation is a term used by the IRS to define the compensation amount that is a deductible business expense. The issue comes up because stockholder-employees can alter their wages and income distributions to avoid taxes. Under IRC 162 (a), wages are a deductible business expense to the extent wages are reasonable. In an S Corporation, under-payment of wages occurs in order to maximize pass-through income and avoid payment of FICA and Medicare contributions. In a C corporation, wages are maximized and dividends eliminated or minimized to avoid the double taxation of dividends.
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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