Compa ratio: formula and example

Formula

Worked example

An engineering design firm in Pune has set grade M2 at ₹6,00,000 to ₹9,00,000 a year in fixed pay. Kavya, a design lead in M2, earns ₹6,90,000. Her colleague Rohit, in the same grade, earns ₹8,40,000.

1. Midpoint = (₹6,00,000 + ₹9,00,000) / 2 = ₹7,50,000
2. Kavya's compa ratio = ₹6,90,000 / ₹7,50,000 = 0.92, or 92%
3. Rohit's compa ratio = ₹8,40,000 / ₹7,50,000 = 1.12, or 112%
4. Group compa ratio for the two = (₹6,90,000 + ₹8,40,000) / (₹7,50,000 x 2) = ₹15,30,000 / ₹15,00,000 = 1.02

Reading compa ratio fairly

A compa ratio below 1.00 is not automatically unfair. New joiners, people still learning the role and employees recently promoted into a grade often sit below the midpoint and should move toward it as they grow. A ratio well above 1.00 can mean a long-serving expert, or pay that has drifted without a matching contribution. Always read compa ratio together with performance rating and time in grade before acting on it.

Using it in the increment cycle

Compa ratio makes increment budgets more precise. A common approach is an increment grid that gives larger increases to strong performers who sit low in their range and smaller increases to people already above the midpoint. Group compa ratios by department, location and gender show whether one part of the company is paid consistently above or below the rest. Track the group ratio each year to see whether ranges and actual pay are drifting apart.

• Compa ratio by grade and department.
• Compa ratio by performance rating.
• Group compa ratio for women and men in each grade.

Pitfalls to avoid

The ratio is only as good as your salary ranges. Ranges copied from an old survey or never updated make everyone look underpaid or overpaid. Use the same pay element for the range and the salary, because comparing CTC with a range built on fixed pay gives wrong answers. Review ranges every year, and build them from your own pay and hiring decisions when you have no reliable market data.

How to improve it

• Build a salary range for every grade with a clear minimum, midpoint and maximum.
• Use an increment grid that combines performance rating with compa ratio.
• Make offers within the range, and explain any offer above the maximum in writing.
• Check compa ratios for women and men in the same grade before finalizing increments.
• Review salary ranges once a year so they stay close to what you actually pay to hire.

Tracking it in ZeniaHR

ZeniaHR keeps grades in the organization masters and each employee's grade in organization assignment, and Direct Payroll holds the salary structure built from monthly gross. Salary ranges and midpoints are not stored in ZeniaHR, so keep them in a sheet by grade. List each employee's salary with their grade, divide it by the grade midpoint and calculate group compa ratios.

Frequently asked questions