Updated: Dec 17, 2019
According to a recent Workplace Health Survey, 70% of workers are “actively looking for new job opportunities.” And, one of the top reasons for seeking a new role was cited as being that they were not being paid what they deserve.
There is a lot written about market data and salary benchmarks. Those things are important for external comparisons, but, to the average employee, market data is theoretical. What is real to those employees is the pay of their coworkers. Call it a hyper-local salary benchmark. And, if you think your employees don’t have a fairly accurate sense of what their co-workers are being paid, think again.
A worker's perception of their employer is often driven by how the worker feels he or she is treated relative to other employees, particularly those in a similar position. Big imbalances in pay can leave workers feeling underpaid and thus underappreciated, ultimately giving them cause to leave the company.
An easy way to identify these internal imbalances is by studying the Compa Ratio (sometimes referred to as “Comparative Ratio”) report. It’s been around for a long time. Although the report won’t solve every employee retention issue, it can help identify pay disparities. This will allow HR to get ahead of issues of employee dissatisfaction, which could lead to unwanted employee turnover.
Let’s look at some sample data we obtained from our Canopy HRMS. A mid-sized business in Atlanta, Ga., has two Customer Service employees. Jill, one of the two representatives, is a great performer, as evidenced by her performance reviews. But, data shows that she is paid at only 75% of the midpoint, or average salary, for similar positions in the region. This is a big problem. Jill, one of our best performers, is being paid less than other employees in her job and, possibly most importantly, notably less than her own coworkers.
If your HRMS doesn’t offer a Compa Ratio report, the calculation can be done manually.
To calculate a Compa Ratio, divide an employee’s current salary by the pay range midpoint. The midpoint, or average, of a salary is halfway between the high end and the low end of any given wage.
Let’s look at an example.
You are evaluating a salary increase for a crew member who has been working for your mid-sized construction company for over a year. The current salary range in your company for this position, according to your HRMS, is between $29,000 and $55,000 annually. The midpoint of this salary range is $42,000. This employee is paid $31,000.
31,000 ÷ 42,000 = 0.73 (multiply by 100, or move the decimal point two places to the right to find the percentage). The salary of this employee is at a Compa Ratio of 73% of the average wage.
Assuming your salary range is competitive, this employee is underpaid, based on this simple analysis of the range data. A competitive salary, according to business management pros, is between 80 and 120% of the wage midpoint, which allows for incremental increases over time based on employee performance and other factors.
For more information on this and other HR-related topics, visit Canopy’s blog at www.canopyws.com/blog
If you’re an existing Canopy customer and want help with the Compa Ratio report, please contact your dedicated support representative who will be happy to help you.
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