Compa Ratio: How to Calculate, Interpret, and Apply This Metric Effectively

What is a compa ratio?

A compa ratio, or “comparative ratio”, is a compensation metric that compares a worker’s current salary to the midpoint of their designated pay range.

Compa ratios are expressed as percentages and help HR teams and managers assess how a worker’s pay aligns with company compensation structures or external market benchmarks.

A compa ratio of 100% means a worker is paid at the midpoint of their salary range. In comparison, compa ratios above or below 100% indicate salaries above or below the midpoint, respectively.

Compa ratios help organizations identify potential pay inequities, support performance-based pay decisions, and provide data-driven budgeting, benchmarking, and workforce planning insights. They also build trust in pay practices and guide adjustments during salary reviews or market realignments.

There are three main types of compa ratios:

• Individual compa ratios compare a single worker’s salary to the midpoint of their range
• Group compa ratios aggregate individual compa ratios by department, team, or demographic
• Average compa ratios calculate the average of all individual compa ratios within an organization or group

How to calculate the compa ratio: Formula and examples

The compa ratio is calculated as follows:

Compa Ratio (%) = (Worker’s base salary / Midpoint of salary range) x 100

Here are a few examples of compa ratio calculations under different scenarios:

These examples show how compa ratios vary by worker situation and help identify who may be underpaid, fairly compensated, or above the target range.

What does a compa ratio tell you?

Compa ratios clarify how workers’ salaries align with the midpoint of their pay ranges. Analyzing compa ratios helps assess fairness, identify pay disparities, and inform innovative compensation planning for your people.

Here’s how to interpret compa ratios:

• Below 100%: This indicates the worker is paid below the market midpoint, suggesting a new hire, someone developing in their role, or someone potentially underpaid.
• At 100%: The worker’s salary aligns with the market midpoint and suggests fair and competitive compensation.
• Above 100%: The worker is paid above the market midpoint, which may reflect a high performer, specialized skills, or tenure.

A healthy compa ratio typically falls between 80% and 120%. Ratios outside of this range suggest a need for compensation adjustments or further analysis.

Illustrative compa ratio examples

Here are some examples of compa ratios across different industries:

Entry-level software engineer, technology sector

Salary: $70,000
Salary range midpoint: $85,000
Compa ratio: 82% (=$70,000 / $85,000) x 100
Interpretation: An entry-level engineer earning 82% of the midpoint suggests room for salary growth as they gain experience and demonstrate performance.

Experienced nurse, healthcare industry

Salary: $95,000
Salary range midpoint: $90,000
Compa ratio: 106% (=$95,000 / $90,000) x 100
Interpretation: A seasoned nurse earning above the midpoint of their salary range reflects recognition of their expertise and tenure.

Junior analyst, financial services

Salary: $60,000
Salary range midpoint: $75,000
Compa ratio: 80% (=$60,000 / $75,000) x 100
Interpretation: A junior analyst at 80% of the midpoint may be in the early stages of their career, with potential for salary progression.

Tenured professor, education sector

Salary: $120,000
Salary range midpoint: $110,000
Compa ratio: 109% (=$120,000 / $110,000) x 100
Interpretation: A tenured professor earning above the midpoint indicates compensation aligned with experience and contributions to the industry or faculty.

Store manager, retail sector

Salary: $55,000
Salary range midpoint: $65,000
Compa ratio: 85% (=$55,000 / $65,000) x 100
Interpretation: A store manager earning below the midpoint warrants a review to ensure competitive compensation and retention.

Real-world example: Whole Foods Market’s pay equity policy

While compa ratios are typically used to assess how fairly an individual is paid relative to a salary range midpoint, some companies apply this logic more broadly, embedding equity into their entire compensation structure. Whole Foods Market is an example, employing a salary cap policy, linking executive pay to worker salaries.

Under this model:

• The highest-paid individual at each store earns no more than a fixed multiple (e.g., 20) of the lowest-paid worker. The original salary cap was set at 8 times the average pay, but has increased as the company developed
• When an entry-level wage increases, executive salaries automatically adjust to maintain the internal salary cap policy

This policy mirrors the intent of compa ratio tracking: to ensure fair, proportionate pay across roles and reduce disparity-driven disengagement. It also reflects a deep organizational commitment to equity, transparency, and cultural alignment, principles that strong compa ratio strategies support at scale.

Why this works for Whole Foods Market:

• Equity at scale: The fixed highest-to-lowest pay multiple ensures frontline staff pay increases directly benefit all workers
• Transparency: Openly sharing the compensation framework creates a shared sense of fairness and motivation, encouraging higher productivity and lower turnover
• Automatic alignment: Adjusting entry-level wages triggers a calculable adjustment throughout the pay structure, removing subjectivity and bias
• Cultural buy-in: Workers better understand the organization’s pay philosophy and feel included in compensation decisions and broader company values

When and why to use a compa ratio

Compa ratios are a versatile tool in compensation management. Here are some common use cases and reasons to employ the compa ratio:

During compensation planning

Compa ratios help you assess how your people are distributed across pay bands before you finalize budgets and salary increases.

By identifying who is below, at, or above the midpoint of their ranges, you can allocate salary increases more strategically and improve alignment with your compensation philosophy.

To identify pay equity issues

Disparities across compa ratios, especially by gender, ethnicity, location, or role, can highlight potential pay inequities.

Reviewing compa ratios across your worker groups helps you detect and address inequities before they escalate into compliance risks or impact morale.

To manage salary increases and performance reviews

Compa ratios give you critical context for determining merit-based salary increases. If one of your people has a low compa ratio but performs strongly, they may warrant a larger raise than someone already above the midpoint.

This type of compa ratio analysis helps balance internal fairness by recognizing high performers and ensuring your compensation decisions are equitable and performance-driven.

To evaluate the effectiveness of your pay bands

If most of your people consistently fall below or above their midpoints, it could indicate that your salary ranges are outdated or misaligned with market benchmarks.

Monitor average compa ratios across your teams or levels to spot trends and adjust your pay bands accordingly.

To support transparent compensation discussions

Compa ratios serve as a valuable reference point during compensation conversations with your people, especially if your organization embraces pay transparency.

By showing how a person’s salary aligns with the midpoint of their role, your managers can explain pay decisions more clearly, set realistic expectations for growth, and build trust and fairness in your company’s compensation framework.

Compa ratio vs. range penetration: What is the difference?

Compa ratio and range penetration are both used to evaluate how a worker’s pay compares to their salary range, but they measure different aspects of compensation.

While a compa ratio compares a worker’s base salary to the midpoint of their pay range, range penetration shows how far a worker has progressed through the pay range, from minimum to maximum.

Compa ratios show whether someone is paid below, at, or above the market rate for their role. Range penetration helps you understand the person’s salary growth or progression within a level.

As we’ve seen, the compa ratio is calculated as:

Compa ratio (%) = (Worker’s base salary / Midpoint of salary range) x 100

Range penetration is calculated as:

Range penetration (%) = [ (Salary – Minimum) / (Maximum – Minimum) ] x 100

Where, Minimum and Maximum refer to the lowest and highest salary levels within the pay range, respectively.

When to use each metric

The compa ratio and range penetration serve unique purposes in compensation analysis. The following use cases illustrate which metric to use in different circumstances:

Here are some examples of how the two metrics work in practice:

• New hire tech role: Consider a junior-level worker whose compa ratio is at 80% of their midpoint, while the range penetration shows they’re 10% into the band. This worker is early in their pay range and earning below the market midpoint, suggesting potential for future progression and salary growth.
• Long-tenured worker: A worker may have a compa ratio of 110%, while their range penetration is 95%, showing they’ve progressed 95% toward the maximum of their range. In this case, the worker may be nearing the top of their current band and could be considered for a promotion or band adjustment.
• Senior team member preparing for a leadership role: Here, the compa ratio may be 105%, meaning the team member is paid slightly above the market and signals a high-value contributor, whereas their range penetration may show 99%. This indicates limited room to grow without promotion and may flag a high performer ready for advancement.

When compa ratio and range penetration are complementary

When used together, the compa ratio and range penetration provide a fuller picture of your organization’s compensation strategy, helping you make nuanced, data-driven pay decisions.

Here are some areas where these metrics work effectively together:

• New hire tracking, helping your managers monitor and plan salary growth over time.
  Example: A new worker may have a compa ratio of 85% and a range penetration of 10%, indicating they’re below the market midpoint and early in their band.
• Performance vs. tenure, helping to balance growth potential and salary increase decisions
  Example: Two workers have the same compa ratio (e.g., 100%) but different range penetrations (e.g., 40% and 90%), indicating that one worker is much closer to their salary range limit than the other, even though they’re both at their midpoints.
• Market misalignment, occurring when your people show a high range penetration (e.g., 80–100%) with low compa ratios (e.g., 70–80%), which may suggest salary ranges that are out of sync with your organization’s benchmarks.

The compa ratio and range penetration help you balance external competitiveness (compa ratio) with internal progression (range penetration), allowing you to make informed and equitable compensation decisions.

Best practices for using the compa ratio in compensation planning

Apply your compa ratios thoughtfully and consistently to get the most out of them. Treat them as part of your organization’s broader, data-driven compensation strategy.

Here are some best practice recommendations to guide your approach:

• Use accurate and up-to-date pay ranges: Regularly review and update your pay ranges to reflect current market benchmarks. This ensures that compensation planning at your organization is grounded in relevant data and supports fair pay decisions.
• Combine with performance and market data: Layer in performance ratings and external market data to contextualize your compa ratio calculations and align pay with your people’s contributions and competitiveness.
• Monitor biases in starting salaries and adjustments: Be vigilant about biases in your people’s starting salaries and pay increases to reduce the potential for inequities and strengthen your commitment to pay transparency and fairness.
• Keep leadership and your people aligned on how compensation is structured: Communicate clearly about your salary ranges and how compa ratios work to build trust across your organization. This helps your managers and decision-makers apply your compensation policies consistently during review cycles.
• Use compa ratios to guide proactive workforce planning: Monitor trends across your teams and functions to flag retention risks or pay-compression before they become issues. This helps you anticipate workforce needs and allocate budgets more effectively during compensation planning.

Manage pay bands and compa ratios at scale with Deel

Deel helps you manage compensation bands and compa ratios at scale, accurately and efficiently, so you can make smarter pay decisions. Use our compensation management solution to:

• Define and manage salary bands by role, department, or location
• Automatically calculate compa ratios to understand how your people are positioned
• Streamline reviews with custom workflows and permissions, incorporating performance scores (where relevant)
• Get global compensation guidance by accessing localized market data with Deel’s salary insights tool, or integrate data from your preferred compensation survey provider

Book a demo to see how Deel can help you leverage effective compa ratio analysis for your global workforce.