“Compensation” Versus “Remuneration”

Today I tweeted the following:

It prompted the following tweet from the redoubtable @IPDraughts:

Because tackling this requires more than 280 characters, I permit myself to respond on this blog.

As regards compensation, Mark is playing a game I don’t want to be caught playing, namely “My meaning is better than your meaning!” In fact, Black’s Law Dictionary offers as definitions of compensation both meanings that Mark alludes to:

compensation (kom-pən-say-shən) n. (14c) 1. Remuneration and other benefits received in return for services rendered; esp., salary or wages.

2. Payment of damages, or any other act that a court orders to be done by a person who has caused injury to another.

I gather that compensation is mostly used in England to express only the second meaning. But given the promiscuous exchange between American and England, I suggest it would be rash to expect the English understanding to prevail in a given context. Mark pointed me to the following exchange in this 2010 article in The Lawyer about the meeting of American and English cultures at Hogan Lovells, and I think it makes my point for me:

Still, the Americans have won the first lexical battle. Asked about remuneration generally, Harris checks himself. “Oh, we don’t say ’remuneration’ now,” he says, as Gorrell nods in agreement. “We say ’compensation’.” Quite why ’remuneration’ has become a non-word within Hogan Lovells is difficult to work out, but the following day The Lawyer gets some ­clarification. Apparently it boils down to ­accepting the American term, which is “more widely understood as a term around the world, not just in the US”.

You might think I’d be in favor of promoting use of remuneration to express the first meaning and compensation to express only the second meaning, so as to avoid confusion, but in fact I’m not so inclined. The alternative meanings of compensation don’t worry me: unless you’re particularly clumsy, the context in which you use the word compensation would make it clear which meaning you intend the word to have: you should always refer to compensation for something or other.

This ties into my aversion to unnecessary terms of art. Here’s what MSCD 1.11–.12 says:

Lawyers are prone to using doctrinal terms of art in contracts even though simpler terminology is available, rendering those terms of art unnecessary.

For example, in a security agreement, why use hypothecate regarding a security interest? Why not simply use grant? Hypothecate means to pledge without delivery of title and possession. That meaning goes beyond the function required of the verb in language granting a security interest. And that meaning isn’t otherwise necessary, as the security agreement itself will specify what the terms of the security interest are. Hypothecate might have value as shorthand for court opinions or scholarly texts, but that’s very different from what’s required for a contract. Using grant in granting language in a security agreement wouldn’t prevent that grant from being a hypothecation, if the remainder of the granting language is consistent with that meaning. If it isn’t, using hypothecate instead wouldn’t fix that.

In other words, say what you mean to say without relying on the reader to read into your choice of words distinctions of varying levels of obscurity.

It’s just as well that I’m OK with using compensation to express both meanings: I wouldn’t hold out much hope for rehabilitating remuneration, which sounds fuddy-duddy to Americans. I don’t recall encountering it outside of a formal legal document. And it’s not that common in U.S. contracts: only 341 contracts filed on EDGAR in the past 30 days contain the word renumeration.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.

7 thoughts on ““Compensation” Versus “Remuneration””

  1. I agree about remuneration, but what’s wrong with “pay,” “paid,” and “payment”? Let’s not go all Christopher Kimball here–there really can be more than one perfectly acceptable solution.

  2. What about the difference between compensation and indemnization or indemnification? Are they similar? It seems to me that indemnification is compensation for damages, and just plain compensation is broader, like pay for a service rendered. That’s my impression.

    • The approach is the same. The word you use doesn’t matter so much as the broader context. That’s why in indemnification provisions it’s not the verb that matters, so much as your specifying the elements of indemnification. You could even say “will not be liable for” instead of “indemnify”.

  3. Isn’t compensation broader than remuneration? Although I agree with Vance on ‘pay’ for its elegance, I see compensation more akin to consideration, in that it need not be monetary – e.g., can’t one be compensated with shares, or some form of preferrential status? Often in our settlements of construction claims, ‘compensation’ is in time. Money (remuneration) does not follow tautologically.

  4. Questions keep coming up on how to translate Chinese contracts for these terms. My approach so far is salary and benefits are for employees, compensation is for industrial accidents and expert witness etc. pay, salary and benefits for employees, indemnification for adjusting risks, and pay for liquidated damages. I see unsalaried directors of a corporation receiving remuneration. Can we imagine a situation where we could write a single sentence more clearly by avoiding using a single term to refer to two substantively different things?

    “The general counsel advises that the corporation has the right to suspend directors’ remuneration in case of gross negligence that results loss of insurer loss indemnification coverage, causing payment of damages to third parties and workers’ compensation claims so large that they put the company at risk of insolvency and possibly unable to meet employees’ salary and benefits requirements.”


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