How to Calculate Compa Ratio
Have you ever wondered how your salary was calculated? You're probably familiar with pay grades and ranges, but did you know there's a specific ratio, referred to as the "compa-ratio," that human resources professionals use to maintain consistency in salaries? The ratio is designed to provide a benchmark. However, there are always exceptions. All the same, this ratio is the basis for any argument to change an employee's salary. It's important to note that this article is written from the perspective of an HR professional.
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Instructions
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Review the calculation. The compa-ratio is the average of the employee's actual pay divided by the pay range midpoint within the job grade.
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Gather your data. You need the pay grades and salary ranges for your organization. Pay grades are usually numbered. They are commonly provided, along with a job title to provide perspective on the job responsibilities and requirements. Salary ranges provide a minimum and a maximum range for salaries within a specific pay grade.
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Define your variables. For the purpose of this example and the sake of simplicity, let's say ABC Company has three salary grades outlined below:
Grade / Salary Range
1 / $20,000 to $30,000
2 / $30,000 to $40,000
3 / $40,000 to $50,000
You are being asked to find an appropriate salary for someone who is moving from a 1 to a 2 pay grade. Her current salary is $24,500. -
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Find the midpoint of the new salary range. The employee is moving from a 1 to a 2 pay grade. The mid-point for Grade 2 pay grade is $35,000.
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Calculate the compa-ratio percent. Divide the current salary ($24,500) by the midpoint of the new salary range ($35,000). The equation is $24,500/$35,000 = .7 or 70 percent.
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Interpret the results. Most organizations provide a recommended course of action to take if the compa ratio falls within a certain percentile range. For example, if the ratio percentage falls between 0 to 33 percent, the result is a grade demotion. If the ratio falls between 34 and 66 percent, the result is a lateral movement and if it falls between 67 and 100 percent, the action is a promotion. Following this guidance, our example would result in a promotion recommendation.
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