Compa-ratios explained

Compa-ratio is short for comparative ratio. It’s a metric primarily used to represent an employee’s salary in relation to the midpoint of their salary band. It can be expressed as a percentage or in decimal points.

How to calculate?

You only need two data points to calculate a compa-ratio: a base salary and the midpoint of the corresponding salary band.

Formula: Compa-ratio = (employee’s salary / midpoint of salary band) x 100

Example: Compa-ratio = (70,000/ 80,000) x 100 = 87.5

This means the employee’s compa-ratio is 87.5 or 87.50% of the midpoint.

Note: both need to be full-time equivalent or part-time equivalent, otherwise the calculation will return an incorrect value. For example, if an employee works part time, convert their salary to full time before you calculate their compa-ratio.

How to interpret?

Salary bands are built different in every company as they can vary based on a wide range of factors. This means there isn’t a single compa-ratio range that exists.

For companies that have “broad” bands, compa-ratios will typically range from a minimum of 80% to a maximum of 120%. For “narrower” bands, compa-ratios may be shorter ranging from 90% to 110%. Either way, the midpoint is always represented as 100% of the band.

Examples

Band A:

Band B:

A compa-ratio can broadly speak to the employee being positioned in 5 different sections of any given salary band.

• Below the band
• Below the midpoint (within band)
• At midpoint
• Above the midpoint (within band)
• Above the band

Generally speaking, position in band should be aligned with the company’s pay practices on performance and career growth. For example, a newly promoted employee may be typically found at the start of the band as their growth in the new role is matched by their opportunity of salary progression within the band. A high performing, more experienced employee within the same role would be expected to be positioned high within the band.

How in-demand a role is can also play a part in where employees are positioned within the band. in these scenarios, compa-ratio decisions must balance sustainable salary progression with the whims of the market - not an easy task!

How are they useful?

Compa-ratios are the most effective metric to use when comparing salaries across performance levels, roles or locations. This is because it “eliminates” the actual monetary value, currency, working pattern or even salary band. And this enables you to report, measure and analyse key compensation trends using a like-for-like reliable metric.

Put into context, this means that you can objectively compare position in band for all high performing employees across the whole of your APAC locations at the touch of a button. Or truly deep-dive on pay equity across your whole organisation.

Best practice

• Context is key: like many things in reward, numbers don’t normally tell the full story. You may have a high performing employee low in band. But they were only just promoted to their new role so that may be in alignment with your pay practices. Understanding context behind the numbers will ensure you can make informed decisions.
• Consistent range of compa-ratios in your bands: for the most part, your bands should be structured in the same way (same breadth between the midpoints and the minimum or maximum of your bands). This removes complexity and misleading comparisons from your compa-ratio analyses.
• Clear communications: a familiar concept! the more your employees know and understand compa-ratios the more you can foster transparency and trust over your overall reward processes.

Ready to supercharge your hiring? Here’s how Dotti can help: all our offers track compa-ratios enabling you to quickly and efficiently run a host of insights into your hiring practices. Sign up to the waitlist below.