# How to Calculate Compensation Ratio

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If you own or manage a business or organization, labor cost is a major concern. However, managing a compensation program requires more than just knowing how much the payroll is. The compensation ratio, or compa ratio, is a metric that allows you to determine how the salaries of different employees compare. This makes the compa ratio a valuable tool for controlling labor costs and determining if the salaries you are paying are adequate to attract and retain qualified people.

## Compa Ratio Overview

The compa ratio compares a salary amount to other salaries in a given category by measuring the salary as a percentage of the midpoint of a salary range. Suppose your organization has established a salary range of \$48,000 to \$72,000 for a category of employees. The midpoint of this range is \$60,000. An employee with a salary of \$72,000 has a compensation ratio of 120 percent of the midpoint, while someone who is paid \$48,000 has a compensation ratio of 80 percent. You can use the ratio to determine where a particular employee stands relative to others holding the same job. You can also use the compa ratio formula to compare different groups of workers or to compare your salaries to market rates.