A compa-ratio of ‘100 %’ would mean that the employee’s current salary for a job position and the range mid-point for a comparable position are equal.
Compa-ratio= (Employee' s current salary )/(Range mid-point) X 100 %
Compa-ratio is used by the employer to benchmark the salary being paid to the employee with that of the market. The ratio is determined on the basis of the strategy of the organization and the budget allocated for the workforce.
A salary range – minimum and maximum – is defined and the range mid-point is found. This procedure is followed for each grade level. This helps achieve internal equity. A Market Reference Point can be used instead of a range mid-point to achieve external equity. An employee’s work experience, performance, and skills would indicate the compa-ratio at which the salary is to be fixed.