Measuring Pay to Salary Ranges: Part 1

It’s critical for compensation professionals and business leaders alike to understand how employees are paid relative to internal pay ranges. Because ranges are designed and updated based on market data, comparing employee pay to the associated ranges gives meaningful insights around how competitively employees are paid, both internally and externally. Showing an employee’s pay relative to their range may also give better understanding around that employee’s tenure in their role, performance, and promotional potential.  

There are currently two commonly used methods for measuring employee pay and range data: compa-ratio and position in range (aka range penetration). Each approach offers slightly different insights into how employees are compensated at an individual level or in aggregate.  Both formulas provide valuable feedback when evaluating employee pay. Let’s review these two calculations and consider the advantages and weaknesses of both.  

Compa-ratio

Compa-ratio is a straightforward calculation to compare an employee’s annualized pay against the range midpoint associated with their job.

With this calculation, the closer the value is to 1.00, the closer the pay is to midpoint. Because grade ranges are created, at least in part, based on market data, it is also safe to infer that a compa-ratio close to 1.00 also indicates that the compensation is closely aligned with the competitive market rate.  

It’s relatively straight-forward to apply this calculation to an employee or to a group of employees. For example, it’s helpful for a business leader to understand the average compa-ratio for employees within a job family, a business unit, or even the entire organization.  

However, this formula does not indicate when an employee is paid below the range minimum or above the range maximum. That is because while a range can be wide or narrow, there is no reference to the range min or max in the formula – the only reference value is the midpoint. Therefore, it’s not readily revealed when an employee might need an adjustment to be paid within range, nor is it apparent when an employee is getting close to a range maximum and is at risk of being redlined. There is also not a consistent result that would indicate when an employee is potentially ready for a promotion to the next level role within their job function.  

Position in Range

Position in range is a more nuanced calculation to show how far into the overall range spread an employee is paid:  

With this calculation, we know that a result of 0.50 means the employee is paid at the midpoint and the closer the result is to 1.00, the closer the employee is to the range max. We also know that any negative value indicates an employee is paid below the range minimum and any value that is greater than 1.00 means the employee is paid above the range max.  

Because this formula references the range min AND max, the results give a stronger indication of where the employee is paid relative to the entire range associated with their job. Therefore, it’s a good measure when evaluating an employee’s career progression and potential readiness for promotion.

Let’s take a look at an example

We have 2 companies: Global Technology Corp and International Systems.

Global Technology Corp has a more hierarchical structure - each job function is represented with many levels of individual contributors and leaders. Therefore, they have many grades and ranges, with a narrower range spread of 22%.  

International Systems is a flatter organization with each job function having just a few different levels. Overall, they have fewer grades, and a wider range spread of 50%.  

While both companies have the same midpoint associated with the Analyst range, they have different min and max values that correspond with their range spreads.

Billie Clay, an Analyst, has an annual salary of $89,000. Because the two companies have grades that share the same midpoint of $100,000, her compa-ratio is the same at both organizations: .89.  However, if we use the position in range calculation, we can quickly see that Billie would have a negative position-in-range value at Global Technology Corp (-0.05), putting her below the range for her role but would fall within range at International Systems with a position in range value of 0.23.  

Conclusion

Both of these formulas can provide a better understanding of how employees are paid relative to an organization’s structure philosophy. Compa-ratio is a straightforward method that is quick and easy to calculate to understand how pay relates to midpoint. The position in range calculation, while more nuanced, provides more context to the employee’s pay relative to range min, mid, and max. Compa-ratio is a good measure when evaluating an employee or groups of employees, compared with midpoint. Position in range is a good measure when evaluating an individual’s pay, especially from a career path perspective.  

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Stay tuned for Part 2 of this post where we will layer in additional considerations for effectively evaluating pay and salary ranges.

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