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Compa-ratio is a measurement of pay that compares an employee’s salary to the median compensation for similar positions within a company or a target job category. Values are expressed as a percentage.

For the purpose of calculating compa-ratio, compensation is a base, annual salary. It generally does not account for bonuses, variable pay or the value of benefits packages.

The compa-ratio calculation is simple. Divide the employee’s annual salary by the median salary for similar positions and multiply the result by 100. For example, if an employee earns $45,000 per year and the median salary for similar positions is $50,000, the compa-ratio formula is:

$45,000/$50,000 x 100 = 90%

Compa-ratio percentages typically fall between 80% and 120%, with 100% considered "market value." (Market implies that the median of the population you're analyzing is a fair comparison.)

New hires tend to receive compensation on the lower end of this spectrum so that they have room to grow, while longer-tenured employees and those with rare skills sets may earn salaries closer to the top mark. Any results that deviate from these norms, i.e., a consistent top performer at 80%, is a signal that some action should be taken.

Note that compa-ratio is based on "median" not "mean" - this makes it more representative of the population of salaries and prevents one very high or very low paid group distorting the distribution.

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