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Tailoring ‘Compa Ratio’

August 13, 2010 1 comment

Compa Ratio (CR) refers to the salary of an individual with respect to the median (mid point in the salary range). CR offers more realistic and useful insight into an individual’s compensation than the range penetration.

Consider following case: An employee is drawing 0.9 M salary and the salary range for the position is from 0.5 M to 1.5 M with 0.95 M as the median. In this case, the Compa Ratio is .9/.95 = 95%. This means that the person is quite close to the mid point.

However, at times we may want to place employees at 66 percentile or 75 percentile. In this case the formula can be slightly tweaked to replace Median with Target Salary (Benchmark). Thus, CR = Individual’s Salary/ Benchmark Salary

In the above case, if the 66 percentile is 1.3 M, the CR would be : .9 / 1.3 = 69%. So we know that the employee is at 69% percent of the target salary and need salary correction.

Therefore, it helps to calculate Compa Ratio by comparing the salary to Target Salary instead of the Median.

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