Compa-ratio
Compa-ratio is an employee’s pay divided by the midpoint of the pay range for their job, shown as a percentage.
- LAW
- Business practice, not law; pay gaps: 29 U.S.C. §206(d)
- BOUNDARY
- The pay range for the job actually done
- FORMULA
- Base pay ÷ range midpoint × 100
- WATCH FOR
- Cutting the higher rate to close a sex-based gap
A compa-ratio of 100% means the employee is paid exactly at the range midpoint. At 85%, pay sits 15% below the midpoint; at 115%, 15% above it. Compa-ratio is a compensation-planning measure, not a legal standard: your own pay structure sets the midpoint it divides by. You use it to compare employees in different ranges on one scale, to size merit increasesMerit increase. A merit increase is a lasting raise to an employee’s base pay, sized by individual performance and usually set during a review cycle.Click to open the term, and to flag pay compression or equity gaps worth a closer look. A ratio flags a gap; it never explains or justifies one.
How do you calculate compa-ratio?
Divide the employee’s base pay by the midpoint of their pay range, then multiply by 100. Keep both figures on the same basis: an hourly rate against an hourly midpoint, or an annual salary against an annual midpoint. Compare each employee to the range for the job they actually do, not the title on file. The table uses an hourly range of $24.00 to $36.00, so the midpoint is $30.00 and the range runs from 80% to 120%.
| EMPLOYEE | HOURLY RATE | MIDPOINT | COMPA-RATIO |
|---|---|---|---|
| A | $25.50 | $30.00 | 85% |
| B | $30.00 | $30.00 | 100% |
| C | $34.50 | $30.00 | 115% |
How does compa-ratio size merit increases?
Many employers use a merit matrix, where the increase depends on both the performance rating and the compa-ratio. In a typical matrix, an employee below the midpoint gets a larger percentage than an equally rated employee above it, so pay moves toward the midpoint over time. The figures below are an illustration; your budget and policy set the real ones. Under the Equal Pay ActEqual Pay Act. The Equal Pay Act of 1963 requires you to pay men and women equally for equal work in the same establishment.Click to open the term, a merit system justifies a pay difference only as a structured procedure that evaluates employees at regular intervals against predetermined criteria.
| RATING | BELOW 90% | 90%-110% | ABOVE 110% |
|---|---|---|---|
| Exceeds expectations | 5% | 4% | 3% |
| Meets expectations | 3.5% | 3% | 2% |
| Below expectations | 0% | 0% | 0% |
What does a compa-ratio gap mean for pay equity?
A compa-ratio gap is a prompt for review, not a finding. If women in one job average 92% and men in the same job 104%, you look for the reason. The Equal Pay Act allows a sex-based pay difference for equal work in one establishment only under a seniority system, a merit system, a system measuring earnings by quantity or quality of production, or a factor other than sex. When a sex-based gap is proved, you comply only by raising the lower rate, never by cutting the higher one.
What is a red-circle rate?
In pay-structure practice, a red-circle rate is pay above the range maximum, such as a compa-ratio over 120% on an 80%-120% range. Many employers hold that base pay until the range moves up. The Equal Pay Act regulations use the term for higher than normal rates kept for reasons unrelated to sex, such as keeping a long-service employee’s pay after an ill-health transfer to less demanding work. A higher rate that was paid on the basis of sex cannot be red-circled to comply.
Frequently asked
- 29 U.S.C. §206, Minimum wage
- 29 CFR Part 1620, The Equal Pay Act
- 29 CFR §1620.26, Red circle rates
- U.S. Equal Employment Opportunity Commission, Section 10 Compensation Discrimination
General information, not legal or tax advice. Apply current federal and state rules with qualified guidance.