How to Calculate Compa Ratio

by Michael Keenan; Updated September 26, 2017
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The compa ratio measures how a person's salary compares to the market average for the same position. An employee can use the compa ratio to see how her salary compares to what other people are making. Employers can use the compa ratio to compare how the company's overall pay for various positions compares to the industry as a whole. For example, a company could average the pay for all of its first-year associates and calculate the compa ratio of the average pay to see how the company stacks up against the market average when it comes to compensation.

Step 1

Divide your salary by the percentage of time you work compared to a full-time schedule to find your full-time equivalent salary, if you don't work full-time. That way, you're comparing what you would earned full-time to the full-time average salary. For example, say your job equals only 70 percent of a regular full-time schedule, and you make $35,000 a year. Divide $35,000 by 0.70 to find the full-time equivalent salary is $50,000 a year. If you are full-time, skip this step.

Step 2

Divide your full-time equivalent salary by the average market salary for your position. If you don't have market specific data, you can use the U.S. Department of Labor's website (see Resources) to find an average salary for your position based on where you live. For example, suppose your annual salary is $50,000 and the average for your position in your geographic region is $51,000. Divide $50,000 by $51,000 to get 0.98.

Step 3

Multiply the result by 100 to calculate your compa ratio as a percentage of the average salary. A result of exactly 100 means you are paid the average. Results over 100 mean you are paid more than the market average, while results under 100 mean you are paid less than the market average. Finishing the example, multiply 0.98 by 100 to find your compa ratio is 98 percent, which means you are paid just under the market average.

Warnings

  • The market average for any position isn't always readily available because of limited information. For example, different companies may have slightly different responsibilities for people with the same job description, resulting in different pay scales. In addition, if you live in an area with a low cost of living, and the average includes people living in high-cost areas, the average may be inflated. This can result in your compa ratio showing you're underpaid compared to the market average.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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