Two formulas carry this whole unit. Learn what each divides by, because every wrong answer is the same numbers divided the other way round.
Compa-ratio
Compa-ratio = salary / range midpoint x 100. The reference point is always the midpoint, never the maximum.
- Worked example: salary $72,000, midpoint $80,000. 72,000 / 80,000 = 0.90, so compa-ratio 90.
- A compa-ratio of 118 means the salary is 18% above the midpoint. A compa-ratio of 82 would mean 18% below.
- Running it backwards: salary = compa-ratio x midpoint. At a midpoint of $95,000 and a target compa-ratio of 110, offer 1.10 x 95,000 = $104,500. Dividing instead of multiplying gives 95,000 / 1.10, which is the keyed trap.
- Group compa-ratio uses the average salary. Salaries of $63,000, $69,000 and $72,000 sum to $204,000; 204,000 / 3 = $68,000 average; 68,000 / 80,000 x 100 = 85. Do not use the lowest or highest salary alone.
Range spread
Range spread = (maximum - minimum) / minimum. Divide by the minimum, not the maximum.
- Worked example: minimum $50,000, maximum $75,000. (75,000 - 50,000) / 50,000 = 25,000 / 50,000 = 50%. Dividing by 75,000 is the standard wrong answer.
- Backwards: maximum = minimum x (1 + spread). Minimum $60,000 with a 40% target spread gives 60,000 x 1.40 = $84,000.
- Midpoint when it sits exactly halfway: minimum $48,000 with a 50% spread gives a maximum of 48,000 x 1.50 = $72,000, so midpoint = (48,000 + 72,000) / 2 = $60,000. Stopping at $72,000 and calling it the midpoint is the most common slip on this calculation.
Compa-ratio divides by the midpoint. Range spread divides by the minimum.