How to Calculate a Compa-Ratio and Use It to Reveal Inequity in the Workplace

Calculating compa-ratio is an essential skill for compensation professionals and HR managers. Besides knowing how to calculate comparative ratios, understanding how to interpret the results can help assess the competitiveness of your organization's pay policy and reveal inequity. Learning this is also valuable when conducting compensation analysis or making decisions about employee pay.

In this article, we will discuss the compa ratio formula, how to calculate it, and how to apply it when analyzing compensation data to reveal inequity in the workplace. But first, let's unlock compa ratio meaning.

What is compa ratio?

Compa-ratio, or comparative ratio, is a metric used in compensation and HR to compare an employee's salary to the average for similar positions. By calculating this ratio, companies can determine if they're offering competitive compensation to keep top talent and ensure fair pay equity within the organization.

Fun fact: What does compa mean? The word "compa" likely comes from "comparative" and is used as shorthand for "comparative ratio" in the context of compensation.

To calculate it, simply divide the employee salary by the salary range midpoint. For example: 50,000/$60,000 = 0.8333. Then multiply the decimal by 100 to convert it to a percentage: 0.8333x100 = 83.33%

Challenges and importance of pay equity

Achieving pay equity is a big challenge for many organizations. A recent study showed that women in the United States earn about 82 cents for every dollar men earn. This means that for a $50,000 annual salary, a woman in the United States would typically earn about $41,000, while a man would earn $50,000.

Factors like occupational segregation, unconscious bias, and lack of transparency in compensation decisions contribute to this gap.

To address any kind of inequity, organizations need to analyze compensation data to identify unexplained wage gaps based on gender, race, or other traits. They must ensure fair and unbiased pay practices in setting salaries, raises, and promotions.

Achieving pay equity also requires cultural and organizational changes, including transparency in compensation decisions and addressing biases.

Despite the challenges, fair pay can bring several benefits when done right:

• Fair pay means fair wages based on work, not identity.

• Pay equity attracts and retains top talent.

• Fair pay fosters diverse and inclusive workplaces.

• Pay equity boosts morale and productivity by making employees feel valued.

• Pay equity ensures legal compliance.

• Commitment to pay equity enhances reputation.

Achieving fair play requires compensation planning, and the good news is that Compensation Planning Software is here to help. It eliminates manual spreadsheet processing, reduces planning cycle times by 75%, and helps make informed compensation decisions within budget.

How to calculate compa ratios

Calculating comparative ratio is straightforward; here's how to do it:

Formula: comp ratio = employee salary / salary range midpoint

1. Find out how much the employee earns annually.

2. Identify the middle point of the pay range for the employee's position.

3. Divide the employee's actual salary by the salary midpoint.

4. Then multiply it by 100 to get a percentage.

Example: comp ratio = 45,000/50,000 = 0.9

= 0.9 x 100 = 90%

Eliminate the need for a manual compa ratio calculation with Compensation Planning Software. This tool also helps HR professionals eliminate the manual work involved in spreadsheets, such as copying, pasting, emailing, and checking workbooks.

Compa ratio values and their meanings

After calculating, you get a ratio to interpret. A compa ratio of 1 (or 100%) means the employee's salary is at the midpoint.

Compa ratios above 1 (or 100%) mean salaries are above midpoint, and below 1 (or 100%) mean salaries are below midpoint. The average compa ratio falls between 80% and 120%.

For the example above, a compa ratio of 0.9 (90%) means the employee's pay is below the midpoint for their position, indicating the employee is paid less than average for that role. The average compa ratio falls between 80% and 120%.

What does 100 compa ratio mean?

A comparative ratio of 100% means the employee's compensation matches the market average, or midpoint, for their position. This shows the company offers competitive compensation compared to other businesses.

What does 95% compa ratio mean?

A 95% comparative ratio means the employee's pay is 5% below the market average for their position.

What does 90% compa ratio mean?

A 90% comp ratio means the employee's pay is at 90% of the market median for their position. This indicates they are paid slightly below average but still competitively. It's typical for new hires or those meeting expectations to fall in this pay range, while higher performers might reach 95% to 110%, and top performers can exceed that.

What does a compa ratio of .85 mean?

A comp ratio of 0.85 means the employee is earning 15% below the typical pay for their role. This could suggest they're underpaid compared to the market rate, possibly due to factors like experience level, negotiation at hiring, or a company-wide pay discrepancy.

What is a 1.15 comp ratio?

A 1.15 comparative ratio means the employee's salary is 15% higher than the benchmark for their position, which is usually the market average or an internal midpoint. This indicates they are paid above industry standard.

What does a .75 compa ratio mean?

A comp ratio of .75 means the employee is paid 25% less than the average for their position. This puts them below the predetermined salary range and suggests they may consider leaving for a higher-paying job.

Companies aim for values between .80 and 1.20 for fair compensation and to retain employees.

How to use compa ratios to identify inequity

Now that you've calculated compa ratios, how can you use them to identify inequities in compensation? Follow the steps below:

1. Step 1: Analyze individual compa ratios

   Calculate each employee's compa-ratio by dividing their salary by the midpoint of their position's pay range. To analyze the group compa ratio, average the individual compa ratios of all employees in the group.

   Compensation Planning Software allows users to view compensation information for individual employees or departments. It also provides access to employee compensation history and talent records for informed decision-making on compensation adjustments.

2. Step 2: Look for patterns

   Look beyond individual cases. Examine comparative ratios across various groups such as departments or job levels for consistent patterns of lower ratios, indicating potentially non-competitive pay.

   Identify clusters of employees in similar roles with significantly different ratios, and note patterns based on factors like gender, race, or age, which could suggest unfair pay practices.

3. Step 3: Consider external market data

   While comparative ratios reveal internal pay structures, they don't guarantee fairness compared to the broader market. Use external salary surveys to check how your company's pay compares for different roles.

   If your compa ratios are much lower than market averages, it might mean your pay isn't competitive. This could make it hard to hire and keep top talent and suggest pay disparities compared to market standards.

Calculating compa ratio is just the first step in revealing inequity in your workplace. Once you have the values, it's important to use, analyze, and interpret them effectively to ensure that your employees are paid fairly and motivated to perform at their best.

Let Compensation Planning Software into your compensation strategy to help you achieve internal pay equity in your company with its advanced features in compensation planning.