What does compa-ratio mean?
Compa-ratio is a measure of current pay rates that are expressed as a percentage of range midpoints. When the midpoint of a pay range represents full market pay, the employee's actual income is compared to that midway. This comparative ratio is abbreviated as Compa-ratio.
Calculating a "compa-ratio" is a typical metric used by compensation specialists to measure the competitiveness of an employee's pay level. In other words, it used to determine whether the individual is paid below, at, or above market rates
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How is compa-ratio calculated?
The compa-ratio is derived by dividing the current wage of an employee by the current market rate as established by the company's competitive pay policy. The formula can be written as:
Compa Ratio = Current Pay / Midpoint of the pay range or market average * 100
A wage range exists for each job position, with a minimum, a midpoint, and a maximum. These three figures indicate the job position's industry averages.
What are the different types of compa-ratios?
1. Individual compa-ratio
Individual compa-ratio compares an individual's position in a pay range to the midpoint of a pay range. It can be used to reposition an individual's pay if it is too high or low in the range.
The individual ratio is a simple, but immensely valuable, salary-to-midpoint-of-pay-range ratio:
Actual Pay Rate / Range Midpoint = Compa Ratio (same as the above formula)
In this case, the employee's pay is $47,200, and the salary range's midpoint is $52,000. The compa ratio will be as follows:
47,200 / 52,000 = 0.908 = 90.8 percent Compa Ratio
2. Group compa-ratio
The group compa-ratio is a metric that measures the difference between practise and policy for an entire organisation or group (function, department, or job family.) It is a formula that divides the sum of actual pay by the sum of job reference point rates.
Group Compa Ratio = Sum of Actual Pay / Sum of Job Reference Point Rates
The calculation might look like this in an Excel worksheet.
In the whole compensation management process, this percentage plays a crucial role. It can be used to determine how pay policies have been implemented in general and to detect discrepancies within portions of the organisation that may suggest issues with the policy or how managers have implemented it. It can be used to design and manage salary budgets as well.
3. Average compa-ratio
The average compa-ratio is calculated by dividing the sum of each individual's compa-ratio by the total number of people. As a result, it differs from a group compa-ratio, which is based on the relationship between the amounts of actual pay rates and the sums of job reference pay points. According to the spread of individual compa-ratios at different work sizes, the average compa-ratio can differ from the group compa-ratio.
What is a good compa-ratio?
The optimal compa –ratio is between 80 and 120 percent. A compa-ratio of 100 percent signifies that an employee gets paid at the market median, which is the target market position in this situation. When compared to the market, this compa-ratio indicates that the employee is paid a competitive salary.