A compound is a word (lexeme) that consists of more than one free morpheme. An endocentric compound consists of a head, i.e. the categorical part that contains the basic meaning of the whole compound, and modifiers, which restrict this meaning. For example, the English compound doghouse, where house is the head and dog is the modifier, is understood as a house intended for a dog. Obviously, an endocentric compound tends to be of the same part of speech (word class) as its head.

Exocentric compounds do not have a head, and their meaning often cannot be transparently guessed from its constituent parts. For example, the English compound white-collar is neither a kind of collar nor a white thing. In an exocentric compound, the word class is determined lexically, disregarding the class of the constituents. For example, a must-have is not a verb but a noun.

In the Sanskrit tradition, the type of exocentric compound exemplified by white-collar is called a bahuvrihi compound. The meaning of this type of compound can be glossed as "(one) whose B is A", where B is the second element of the compound and A the first. Thus a white-collar person is one whose collar is white (as a metaphor for socio-economic status). Other English examples include barefoot and Blackbeard.