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Compensation (Compa) Ratio – Definition, Formula & How to Calculate

Compensation (Compa) Ratio – Definition, Formula & How to Calculate
The formula commonly used by compensation professionals to assess the competitiveness of an employee’s pay level involves calculating a comparatio also sometimes referred to as “compensation” or “comparison” ratios. Comparatio is the short form for Comparative ratio.
How CompaRatio is Calculated?
Comparatio is calculated as the employee’s current salary divided by the current market rate as defined by the company’s competitive pay policy. It’s a very simple formula, and a powerful one when it comes to deciding how large of a raise in pay an employee needs at a given time. CompaRatios are position specific. Each position has a salary range that includes a minimum, a midpoint, and a maximum.
These three values represent industry averages for the position. A CompaRatio of 1.00 or 100% means that the employee is paid exactly what the industry average pays and is at the midpoint for the salary range, A ratio of 0.75 means that the employee is paid 25% below the industry average and is at the risk of seeking employment with competitors at a higher pay that is perceived equitable. A ratio of 1.15 comparatio would mean the employee is paid above the industry average.
Individual comparatio
The individual comparatio, which describes the individual’s position in the pay range against the pay policy reference point for the range and can be used to reposition an individual’s pay in the range if it is too high or low.
Group Comparatio
The group comparatio, which quantifies the relationship between practice and policy for the whole organization or a defined population group (function, department, occupation or job family). It is a calculation of the sum of actual pay as a percentage of the sum of job reference point rates. This ratio has an important part to play in the overall pay management process. It can be used to establish how pay policy has been implemented overall and identify differences between parts of the organization which may indicate problems in the policy itself or in the way it has been implemented by managers. It can also be used to plan and control pay budgets.
Average Comparatio
The average comparatio, which is the sum of each individual’s comparatio divided by the number of individuals. It is therefore not the same as a group comparatio which is based on the relationship between the sums of actual rates of pay and the sums of job reference points of pay. The average comparatio can therefore differ from the group comparatio according to the spread of individual comparatios at different job sizes. The group ratio is more frequently used.
What is a good Comparatio?
CompaRatio is a relative measure of your current ability to reach your policy structure line. These are organizationallyunique variables involved to calculate Comparatio

Grade width

Job progression protocols

Population maturity

Market ratio policy

Accuracy of your grade assignments

Precision of your grade midpoints

Performance of your employees

Timing and frequency of increases

Desired competitive posture

The statistical distribution of individual C/Rs

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