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The Compa-Ratio and its Importance to Salary Benchmarking
Compa-Ratio and its Significance in Relation to Salary Benchmarking_-min

The Compa-Ratio and its Significance in Relation to Salary Benchmarking in the Philippines

Every business organization must prioritize acquiring and keeping top talent in the competitive employment market today. Offering salaries that are in accordance with industry standards is one of the main elements in accomplishing this.

The Compa-ratio has developed into a crucial tool for assessing employee remuneration, aiding firms in navigating the intricacies of salary administration. In this article, we will discuss compa-ratio and its relevance to Salary Benchmarking.

What is a Compa-Ratio?

Comparative ratio or Compa-Ratio is a formula that calculates the percentage of range midpoints, which measures the current pay rates. This formula compares an employee’s actual salary to that midpoint when the middle of a compensation range represents the full market pay.

A popular metric employed by compensation professionals to assess the competitiveness of a worker’s pay level is the calculation of a “compa-ratio”. This means it is used to decide if an employee is paid below, at, or, above market rates.

How Do You Calculate the Compa-Ratio?

The compa-ratio is a crucial metric for salary benchmarking that can be used by employers to decide whether an employee is being paid fairly and competitively in comparison to others in the same occupation.

For instance, the calculation shows that the midpoint for a managerial position at your present income level of ₱60,000 is ₱62,500 assuming the maximum range for the role is ₱75,000 and the minimum range is ₱50,000.

To calculate the compa-ratio, you may use the formula below:

Current Salary / Midpoint for that Level = Compa-ratio Hence: Php 60,000 / Php 62,500 = .96 = 96%

How Can the Midpoint of a Salary Range Be Calculated?

To get the midpoint of the salary range, add the minimum and maximum salary range, then divide it by two to determine the salary midpoint formula. This will result in getting the salary midpoint of the role you are computing for.

(Salary Range Minimum + Salary Range Maximum) = Salary Range Midpoint 2 To illustrate: Php 50,000 + Php 75,000 = Php 62,500 2

In case the compa-ratio is at 100 percent, which denotes that the employee is paid at the market median, then the employee is competitively compensated when measured against the market.

Remember that any position paid at a compa-ratio below 90 percent or above 110 percent must be revisited and taken into consideration. Anything in between this range is considered competitive.

In the example above, the compa-ratio is at 96 percent, which indicates market competitiveness.

The Importance of Salary Benchmarking in Retaining Talents

The compa-ratio can help with calculating compensation to ensure that employees are paid competitively. In order for an organization to retain top talent and remain competitive in the market, salary alignment against market standards must be considered.

However, even if the compa-ratio is a useful tool, assessing an employee’s salary must also depend on other factors such as their performance, experience, and skills. In addition, it is significant to remember that salary benchmarking is a continuous process ideally subject to regular updates to ensure that the data is still aligned and pertinent.

Ensure the Alignment of Your Workforce’s Compensation

Organizations may maintain a competitive edge in the labor market and develop a more contented and engaged workforce by incorporating this indicator as part of a more comprehensive salary benchmarking plan.

In our upcoming webinar entitled “Navigating the Modern Job Market: Using Salary and Benefits Benchmarking to Stay Competitive,” we will discuss the important role that salary benchmarking plays in order to stay competitive in the modern market.

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