Compa-ratio answers one question: where does this person's pay sit against the midpoint of their range? SHRM's glossary defines it as a measure expressing current pay rates as a percentage of range midpoints.
The formula
Compa-ratio = employee's current salary / midpoint of the grade the employee occupies
- Below 1.00: paid below the midpoint, and where the midpoint represents full market pay, below market.
- At 1.00: at midpoint, at market.
- Above 1.00: above midpoint, above market.
Forward: an employee earns $58,500 in a grade with a $65,000 midpoint. 58,500 / 65,000 = 0.90, below market. Inverting the fraction gives 65,000 / 58,500 = 1.11, which is the wrong-direction trap and reads as above market.
Working it backwards
Rearrange: salary = compa-ratio x midpoint.
Midpoint $82,500, compa-ratio 0.96: 0.96 x 82,500 = $79,200. The traps are dividing instead of multiplying (82,500 / 0.96 = 85,937), applying 1.04 instead of 0.96 (85,800), and subtracting a flat 5 percent.
Group compa-ratio
Average the salaries first, then divide by the midpoint. Three incumbents at $63,000, $70,000 and $77,000 with a $70,000 midpoint: (63,000 + 70,000 + 77,000) / 3 = 210,000 / 3 = 70,000, and 70,000 / 70,000 = 1.00. Do not sum the three individual ratios (that gives 3.00), and do not report one incumbent's ratio (0.90 low, 1.10 high) as the group's.
What compa-ratio is not
- Position in range, or penetration, divides the distance above the minimum by the full range width. Different measure.
- Range spread compares the maximum to the minimum.
- Average organizational pay against market median for all jobs is an organization-level market comparison, not a compa-ratio.
Carry this: pay over midpoint, and arithmetic right is only half the item. The interpretation of below or above 1.00 is the other half.