The comparatio is a metric that expresses current pay rates as a percentage of the target pay position, which can be external or internal. The compa ratio reveals whether the individual is paid below, at, or above the target comparison point.
Comparatios assist employers in compensation and pay management. It guides how far a pay is from a target comparable point. It aids the organization in determining the pay competitiveness of people, grades, and any employee category group. An organization risks losing highquality employees and attracting lowquality talent if employee compensation is inadequate.
Calculating Compa Ratios
The comparatio is derived by dividing an employees current salary by the current market rate as established by the companys competitive pay policy. CompaRatios are specific for each position. A pay range exists for each position, with a minimum, a midpoint, and a maximum. A comparatio of 1 or 100% implies that the firm is paying a rate that it considers competitive in the external labor market, based on its compensation plan. Values less than 100% may imply the employees are new , but they may also signal that the firm is underpaying employees. If the comparatio is more than 100%, the company is paying over the target market rates.
An internal grade midpoint salary or a target market position could be used as the target reference salary. When computing the comparatio against the market, the comparison point of interest should always be a target point, such as the market median. When comparing it to an internal pay system midpoint it might alternatively be the grade midpoint. These comparisons aim to determine the relative position of your salaries in relation to the reference point.
A CompaRatio Calculator can determine the comparatio targeted at the grades midpoint and any of the following market positions (25th, 50th and 75th percentile). You can evaluate the comparatio against any market percentile by using the formula. The target market position can be the 25th percentile, median/ 50th percentile, or 75th percentile. When you use the comparatio, youre trying to figure out how competitive the salaries are compared to the market. Organizations pay plans vary; some aim to pay at the median, while others aim for the 75th percentile.
Individual Compa Ratio
Individual comparatio describes an individuals pay position in relation to the market reference point.
Compa Ratio = Actual Pay Rate / Range Midpoint
For example, the employees salary is $47,200, while the salary ranges midpoint is $52,000. The following is the comparatio:
Compa Ratio: 47,200 / 52,000 = 0.908 = 90.8%
Group Compa Ratio
The group comparatio is a metric that measures the relationship between practice and policy for a whole company or a specific demographic group (function, department, occupation, or job family). Its a formula that divides the sum of actual pay by the sum of job reference point rates. It can be used to determine how to pay policies have been implemented in general and detect discrepancies
Group Compa Ratio = (Sum of Actual Pay / Sum of Job Reference Point Rate)*100%
For example, lets look at the following four employees who all have the same job title. Assume that the companys competitive pay policy is the midpoint.
Employee  Midpoint  Salary  Compa Ratio 
A  $ 25,000  $ 22,500  90% 
B  $ 25,000  $ 33,000  132% 
C  $ 25,000  $ 27,000  108% 
D  $ 25,000  $ 30,040  120% 
Total  $ 100,000  $ 112,540  113% 
Group Compa Ratio = ($112,540/ $100,000)*100% =113%
A lower than average group compa ratio could indicate a shorter employment tenure, which could be attributable to:
 Higher resignations as a result of economic or financial decisions to forego merit raises
 faster promotions as a result of rapid expansion
 more transfers prompted.
A higher than usual group compa ratio could indicate a longer tenure due to:
 Lack of promotion opportunities.
 Progress in keeping but not promoting people who dont have management skills but perform well, or market forces that demand higher pay rates.
Average Compa Ratio
The average comparatio is calculated by dividing the sum of each individuals comparatio by the total number of people. As a result, it differs from a group comparatio, which is based on the relationship between the amounts of actual pay rates and the sums of job reference pay points. According to the spread of individual comparatios at different work sizes, the average comparatio can differ from the group comparatio. More often than not, the group ratio is applied.
Average Compa Ratio = Sum of Individual Compa Ratio / Number of Individuals
For example, considering four employees in the same grade and assuming that the companys competitive pay policy is the midpoint.
Employee  Midpoint  Salary  Compa Ratio 
A  $ 25,000  $ 22,500  90% 
B  $ 25,000  $ 33,000  132% 
C  $ 25,000  $ 27,000  108% 
D  $ 25,000  $ 30,040  120% 
Total 

 450% 
Average Compa Ratio = ( 450% / 4 ) = 113%
Good Compa Ratio
A comparatio of 100 means that an employee is paid at the market median, which in this case is the target market position. This comparatio implies that the employee is paid a competitive salary compared to the market. Between 80% and 120% is the ideal compa ratio.
The compa ratio determines how competitive an individuals compensation is compared to target positions in the grade or market positions such as the 25th, 50th, and 75th percentiles. Compared to the market, this comparatio indicates that the employee is paid a competitive salary. Its worth noting that a comparatio of 100% is only given to employees who perform above average. Paying low achievers at roughly 100% comparatio is not a sensible business strategy. A comparatio of more than 120% indicates that the employee is most certainly overpaid. A comparatio of less than 80% that the employee is underpaid compared to the target market position. New employees who are still learning the ropes are frequently compensated in the 80% to 90% compa ratio range.
Conclusion
A comparatio study is a great way to keep track of a companys salary competitiveness compared to the market and internal pay structure. The comparatio analysis can be considered as a companys risk monitor. Employees with a comparatio of less than 80% compared to the market median are at significant risk of quitting the company. As a result, comparatios assessments are necessary regularly, both against the market and against internal pay structures. Comparatio dashboards must be generated regularly and provided to executive management and the board of directors so that they may make better compensation decisions.
Nolwazi Mlala is a Business Analytics Consultant at Industrial Psychology Consultants (Pvt) Ltd a management and human resources consulting firm.
Phone +263 4 48194648/481950/2900276/2900966
Cell number +263 779538172
Email: nolwazi@ipcconsultants.com or visit our website at www.ipcconsultants.com