What the compa ratio is
The compa ratio (نسبة المقارنة الأجرية), sometimes written as a single word, comparatio, is an indicator that compares an employee’s pay with the midpoint of the pay range for their grade. It expresses the employee’s position within that range as a single number.
Two inputs go into it: the pay of the individual employee, and the midpoint of the pay range for the grade in which that employee sits. The number that comes out is therefore not an amount of money. It is a position, stated relative to the midpoint of the employee’s grade.
How the compa ratio is calculated
The employee’s pay is divided by the midpoint of the pay range for their grade. Three cases against a midpoint of SAR 10,000 show how the result moves:
- Pay of SAR 9,000 against a midpoint of SAR 10,000 gives a compa ratio of 0.90. The employee is paid 90% of the midpoint, SAR 1,000 below it.
- Pay of SAR 10,000 against a midpoint of SAR 10,000 gives a compa ratio of 1.00. The employee is paid exactly at the midpoint.
- Pay of SAR 11,500 against a midpoint of SAR 10,000 gives a compa ratio of 1.15. The employee is paid 115% of the midpoint, SAR 1,500 above it.
A result of 1.00 places the employee at the midpoint. A result below 1.00 places them under it, and a result above 1.00 places them over it. The distance from 1.00 is a proportion of the midpoint: 0.90 is a tenth of the midpoint below it, and 1.15 is fifteen hundredths of the midpoint above it.
The compa ratio can also be calculated for a group. The formula keeps the same shape, with the average pay of the group in place of the pay of one employee: the average pay in a department is divided by the midpoint, and the result shows where the department as a whole sits relative to that midpoint.
How to interpret a compa ratio
A compa ratio is a description, not a verdict. The number shows where an employee’s pay sits within the range. It does not say whether that position is right or wrong, and the same figure can describe different situations.
A compa ratio below 1.00 can mean an employee who is new to their grade, which is the position to be expected for someone who has only recently been placed in the grade. It can also mean that a review of the employee’s pay has fallen behind. The figure is the same in both cases. What separates them is the reason behind it.
A compa ratio above 1.00 can mean established experience or outstanding performance. It can also mean that the employee has reached the ceiling of their grade and remained in it. Here again one number covers more than one situation, and the number alone does not distinguish between them.
The question that makes the compa ratio useful is “why?”, not “how much?”. The figure itself answers “how much?”. The reason behind the figure is what it cannot show, and that reason is what “why?” asks for.
Where the compa ratio is used
The compa ratio can be put to four uses:
- Reviewing pay increases. It shows who sits below the midpoint with no clear reason for being there. An employee who is new to the grade sits below the midpoint for a reason that is clear, so the case the review looks for is the employee whose position below the midpoint has no such explanation.
- Checking consistency. It shows where two employees in the same grade differ by a gap that neither experience nor performance explains. Both are measured against the same midpoint, so the gap between their compa ratios is a gap between their pay. That check is the practical way into internal pay equity.
- Comparing departments. It sets the group figures of different departments side by side. A department whose average stands at 1.10 and another whose average stands at 0.92 are 0.18 of the midpoint apart, the first above the midpoint and the second below it, and that difference is a question worth examining. The figures raise the question but do not answer it, since a compa ratio is a description and not a verdict.
- Estimating the cost of correcting gaps. It makes it possible to estimate the cost of correcting gaps in pay before the correction is approved, so that the approval is given with that cost known.
The reference behind a compa ratio
A compa ratio is worth nothing if the pay range itself is unsound. This is the condition on which the measurement depends, and it is a condition that can be forgotten.
The midpoint is built on job evaluation and on current market data. If the range is out of date, or was set by estimate rather than on job evaluation and market data, the compa ratio becomes an exact measurement against a wrong reference.
The flaw then lies in the reference, not in the division. The calculation can be carried out without a single error, on pay figures that are themselves correct, and the result will still be measured against a midpoint that is wrong. However precise the calculation, a defect of this kind deprives the compa ratio of its meaning entirely.
The compa ratio also compares the employee with their internal range only, and it says nothing about where they stand in the market. An employee can sit at 1.05 within the organisation, a little above the midpoint of their grade, and still be well below the market, if the whole range lags behind the market. The figure of 1.05 is then an accurate statement of the employee’s position within the range, and it does not show the gap between the range and the market, because the market is not one of its inputs.
For that reason the compa ratio is examined alongside market data, not used in place of them. The position of an organisation’s pay against the market is the subject of external pay equity.
This is an explanation of the concept, not legal advice.
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