Compa-ratio (comparison ratio) is a compensation metric that compares the salary an employee is paid to the midpoint of the salary range for their position or similar positions at other companies. Compa-ratios reveal how far an employee’s pay is from the market midpoint. If an employee has a compa-ratio of 100 percent, they would be considered right “at market.”
Compa-ratios help employers determine if they are appropriately compensating their employees. If employee compensation is too little, an organization risks losing high-quality employees and attracting low-quality talent. But if they pay too high, they’re potentially mis-managing resources and hurting their bottom line.
Finding an acceptable compa-ratio depends on a combination of the position, budget and other employee benefits offered. A compa-ratio below 100 percent can be counterbalanced with benefits such as top-notch health insurance or equity options.
To do a compa-ratio calculation, divide an employee’s salary by the pay range midpoint.
For more on establishing salary ranges, check out this article.