Compensation is an integral part of an organization’s budget strategy. It is important to understand the current state of your employees’ pay. Compa-ratio is a versatile metric to compare your compensation plans and strategies internally and externally.
What is Compa-Ratio?
This metric compares an individual’s salary against a salary range. You can use market/industry salary ranges, geo-region ranges, or your organization’s internal ranges.
It’s a good method for understanding how your current pay strategies stack up in the market. But you can also use it internally on your own pay ranges to understand how much your people are getting paid. Compa-ratio will clarify if your comp strategies are being followed.
To calculate, divide the individual’s salary by the mid-point of the salary range. A score of 1 means a person’s pay is right at the midpoint of the salary range. Anything below 1 means the pay is below the midpoint and anything above means the pay is above the midpoint.
Understanding your scores
The first question when analyzing your scores is “What is your compensation strategy?”. Is your organization’s goals to pay below, at, or above the midpoint? Knowing the answer will help you determine what your response will be. Especially when compared
Impacts of compa-ratio scores when compared against the market
Compa-ratio scores consistently below 1 is not necessarily a bad thing, especially if your comp strategy is to pay below the market average. You just have to understand how that will impact business and develop creative strategies to minimize the risk.
Lower pays will ultimately lower employee engagement and decrease retention. But, maybe your comp-ratios are lower because you hire a lot of recent college grads that would be at the beginning of the salary range. A creative solution to offset high turnover could be creating a robust training and development program. Also, make sure your corporate culture and office environment are enticing to that group. Different generations will have different priorities, like schedule flexibility, remote options, or after-work activities. Don’t forget to look at alternative perks and benefits like tuition or student loan assistance.
Unfortunately, even the best company cultures with awesome perks and benefits will still have higher turnover rates. To help, talent acquisition should be a key partner and be aware of your comp strategy. They can create sourcing and recruiting strategies to minimize the impacts by building a talent pipeline.
Impacts of compa-ratio scores when compared internally
Compa-ratio should be calculated regularly within your internal pay ranges. First, it’ll be a good way to check that your current comp strategy is being followed. For instance, let’s say your strategy is to pay at the midpoint, but comp-ratio scores are consistently higher or lower than 1. There might be a disconnect between your strategy and talent acquisition or your managers. You may need to institute more checks and balances.
This metric can also shed light on your organization’s pay equity. Take a look at your average compa-ratio scores for people that are in the same roles. If you’re seeing a disparity within similar job titles, you have an equity problem. Dive deeper into those groups to determine what’s the cause and how to correct it. The #MeToo movement is putting a spotlight on pay equity and organizations are being expected to correct it.
Staying on top of your compensation plans and strategies is key to a successful business. Compa-ratio is a good metric to help you achieve it.