Simple Metrics: How to Use Compa-Ratios to Guide Compensation Decisions
How competitive are your institution’s salaries? How equitable is pay among your workforce? One quick way to identify potential trouble spots is with comparison ratios, or compa-ratios for short.
A compa-ratio is one of the most common metrics for pay. Simply stated, a compa-ratio compares an individual employee’s salary to the midpoint of a given salary range. This easy-to-calculate statistic can be used in many ways to guide decisions about compensation on your campus.
How to Calculate a Compa-Ratio
A compa-ratio divides an individual’s pay rate by the midpoint of a predetermined salary range. A compa-ratio of 1.0 means that the employee is paid at the exact midpoint of the range, whereas values higher or lower than 1.0 indicate how they are paid relative to the midpoint.
For example, if the midpoint of a salary range is $27,000, and an individual within that range is paid $25,000, that individual is compensated at 94 percent of the midpoint (($25,000)/($27,000) = .94, or 94 percent). But what does a .94 compa-ratio really tell us about how well this employee is being compensated? Is this ratio appropriate for this particular individual?
The answer depends on how you intend to use this statistic and on the type of pay range you use as your basis for comparison. Here are a few different types of salary assessments to which you can apply a compa-ratio in order to get a clear picture of how your institution’s salaries measure up.
Assessing Individual Progression Through a Pay Range
One common use for a compa-ratio is determining where an employee should fall on a standard pay range. In many cases, institutions assign positions to a pay grade that has a pre-defined minimum, maximum and midpoint. A typical range of 80 percent to 120 percent is set around a midpoint target for a given pay grade. New or inexperienced employees are typically paid closer to 80 percent of the midpoint, whereas the most outstanding or longest-tenured employees are paid more, up to the 120 percent end of the pay range.
An employee’s progression through the pay range may be directly related to his or her performance. The University of Missouri System, for example, provides this guidance on how to match performance ratings to compa-ratios when determining merit pay increases. A compa-ratio can help assess the distribution of merit raises by dividing an individual’s raise rate by the overall raise rate for that person’s unit. Individuals who routinely exceed expectations on evaluations should be compensated in a way that advances their compa-ratio more quickly.
Benchmarking Your Institution’s Salaries Against Market Salaries
You don’t need a pay range as a basis for comparison to benefit from compa-ratios — you could also compare your employees’ salaries to appropriate benchmarks from market data. Comparing the salary of your chief compliance officer, for example, to the median salary for institutions with the same classification or affiliation can help you determine how your institution’s pay compares to your peers. Is your salary range competitive, or is it time to review your compensation plan? Low compa-ratios compared to the market might help you identify inadequate pay as a contributing factor to high turnover, or to pinpoint positions in which your institution is paying much higher salaries than are necessary.
Identifying Areas of Inequity
Why stop at individual salaries? Compa-ratios can compare salaries by any characteristic you choose, including for a group of positions. The average pay of one sub-group of employees can be divided by the average pay of the larger category of employees to create a compa-ratio that works the same as for individuals. The possibilities are limited only by your goals. Do administrative personnel in one unit get compensated less than those in another unit on your campus for similar work? Are salaries commensurate across gender or racial/ethnic groups within a position or set of positions?
Although they can’t tell you everything about why a group of employees might be compensated differently, these types of group-level compa-ratios can be a quick way to assess whether more in-depth analysis of potential problem areas is warranted.
A Tool in Your Toolbox
The examples here are just a few of the ways compa-ratios can be helpful when evaluating your institution’s compensation practices. When used as one part of a broad-based strategy of several common compensation metrics, compa-ratios can be an integral part of continuously assessing and improving your compensation plan and practices.
This blog post was contributed by Adam Pritchard, Ph.D., senior survey researcher at CUPA-HR.
Classification and Compensation Toolkits in the CUPA-HR Knowledge Center
CUPA-HR’s DataOnDemand (DOD) Tool (several reports in DOD automatically provide compa-ratios for single and multiple positions, allowing for quick and easy comparisons to peer institutions)