Compa ratio (short for comparison ratio) is a simple way for you to see how your employee’s pay measures up against the midpoint of a salary range for their role.
HR teams use compa ratios when creating pay strategies and conducting compensation planning, salary audits, and pay equity analyses.
Keeping your talent happy is key to a successful business, and fairly paid talent is happy talent. Knowing how your compensation stacks up industry-wide is the first step to offering tantalizing benefits packages.
How to calculate compa ratio
To calculate compa ratio, divide an employee’s actual salary by the market or pay grade midpoint, then multiply by 100.
So, a ratio of 100% means the employee is paid right at the target.
If an employee earns $50,000 and the midpoint of their pay range is $55,000, the compa ratio is 90.9%. A compa ratio can also be expressed as a decimal. In this case, that would be 0.91.
In addition to calculating the compa ratio for an individual, you can also calculate it for a department or team. Looking at compa ratios for entire groups reveals patterns about how your overall pay strategy is working across the business. from spotting budget-heavy departments to identifying groups where compensation may need adjustment. Keep in mind that compa ratios do not include benefits, bonuses, or other job-related perks—only salaries.
How to interpret compa ratio results
Every compa ratio gives you insight into whether someone’s pay sits below, matches, or rises above the salary range midpoint. Here’s how to understand the numbers:
- Below 100%. Your employee earns less than the midpoint. This may indicate they are new to the role, under market, or due for a raise.
- Exactly 100%. Your employee is paid at the market midpoint.
- Above 100%. Your employee earns above midpoint. This may reflect tenure or exceptional performance. Alternatively, it could point to market scarcity for the role.
Why compa ratio matters for employers
The information revealed by compa ratios helps you build fair and competitive pay practices that support your goals and keep your talent committed. Calculating compa ratios can up your compensation game and give you the insights needed to make smarter, more strategic decisions regarding pay.
It helps uncover pay inequities
Calculating compa ratios gives you a clear view of how employee pay lines up across teams and roles, and makes it easier to spot who’s underpaid or overpaid. This transparency helps uncover patterns that can lead to inequities, from overlooked new hires to long-tenured staff whose pay might not have kept pace with their value.
Showing that your company is committed to equitable pay is essential, as doing so can reduce turnover rates. One study by Payscale showed that improving fair pay perception can reduce intent to leave by 27%.
It ensures competitive pay practices
Tracking compa ratios arms you with data to see where your employees’ pay stands against market benchmarks. Are you paying too much? Too little? Just right? Of course, you want to offer salaries that attract the best talent and retain them over time, too.
When employees know they’re being paid fairly for their skills and experience, engagement and loyalty naturally rise. Employees who feel they are paid fairly are 85% more engaged and 62% more committed than those who don’t feel they are paid fairly, according to research by Mercer.
It supports compliance with pay equity laws
Calculating compa ratios is a clear, data-driven way to spot and address pay gaps. This is essential for proving that you are following pay transparency laws, such as the EU’s Pay Transparency Directive and California’s pay transparency law, among others. These laws were crafted to eliminate pay-related discrimination against certain groups of people, particularly women. For example, in the U.S. in 2024, women earned 84 cents for every dollar men earned for the same work. Latina and Black women fared even worse, earning 59.2 cents and 65.8 cents on the dollar respectively when compared to white men.
Calculating compa ratios for roles helps you meet the strict reporting and transparency standards required in certain jurisdictions—and make changes if you need to. In the EU, if the gender pay gap at your company is greater than 5%, you must work to remedy it. This can be a tall order for some companies, particularly in Germany, where the gender pay gap was as much as 18% within only the last few years.
Limitations of the compa ratio metric
While compa ratios are a valuable starting point for understanding pay alignment, they’re not the whole story.
Compa ratios only measure base salary, leaving out bonuses, benefits, and other rewards that make up total compensation. Relying on just this one compensation metric can mean that you miss critical context, like an employee’s performance, experience, and skill set, as well as market trends shifting in industries and locations.
That’s why you should always pair compa ratio analysis with a closer look at role responsibilities, individual contributions, and up-to-date market data to avoid oversimplifying compensation decisions. The more up-to-date the better—last year’s numbers won’t cut it.
Pay your people fairly with Pebl
Want to pay your global talent fairly without becoming an expert in calculating compa ratios and other compensation metrics across the globe?
Let Pebl handle the complexities of compensation and compliance.
Our global payroll services centralize your pay and compensation across 185+ countries worldwide. Our local experts craft competitive pay and benefits packages that will have global talent pounding down your door. And that’s not all—our employer of record services allow you to hire confidently without setting up a local entity. We handle it all, from visa sponsorship and work authorization to global equity.
When you’re ready for us to handle the HR work, let’s talk.
This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided “as is,” and no representations are made that the content is error-free.
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