A Basic Understanding Compa-ratio

The Compa-ratio is a tool to measure the competitiveness of a company's salary levels for jobs against the market. The way to calculate the compa-ratio is as below:

(The employee's current salary / midpoint of the salary scale)

For example,

• The salary scale for Accounts Assistant is RM1600 - RM3000
• The midpoint of the scale is RM2300.
• The Accounts Assistant' current salary is RM2380
• Therefore the compa-ratio is RM2380 / RM2300 = 1.03

If the compa-ratio is below 1, then it is said that the Accounts Assistant is not yet paid competitively. If the compa-ratio is 1, then he is being paid competitively at the defined market rate. In this example, the Accounts Assistant is paid more than competitively.

The compa-ratio can also be used to measure the competitiveness of salary paid to a group of persons in a salary scale of a job grade. There could be more than one job in a job grade and there are often more than one person in a job. To calculate the compa-ratio of a group of person, do this :

• Compute the average salary of all the persons in all the job in the salary scale
• Divide the average salary value derived by the midpoint of the scale.

We can use the compa-ratio for the purpose of identifying biasness and discriminations between different ethnic groups doing the same job, or between genders, etc.

Caution

• The concept of compa-ratio is only true if the salary scale has been built with the Market Reference Point (MRP) as the midpoint of the salary scale. The MRP is the ringgit value for a job defined by the company as ideally the average salary it would like to pay for all employees in that job. This decision is made based on the results of a salary survey on that job.
• You may come across articles and opinions on the internet as below :
• Compa ratio of 0.8 - 0.95 means that the company is not paying competitively
• Compa-ratio of 1.15 means the company is over-paying people in the scale

Please note that such figures only make sense if the pay range of the salary is set at 50%, e.g. Starting Salary RM1000 - 1500 Maximum. Therefore if the spread is lesser or more than 50% , those figures above are no longer relevant.

Written by Chan Wang Tak
HR Consultant and Training Facilitator
Jan 2018

Credit: The article were provided through the courtesy of Chan Wang Tak.