What is the compa-ratio of the employee?

Grade 12 of a company’s salary structure has a mid-point of $46,500. A full-time employee in grade 8 has a base salary of $45,000.

What is the compa-ratio of the employee?
A . 0.75
B . 0.85
C . 0.96
D . 0.70

View Answer

Answer: C

Explanation:

Compa-ratios are used to measure and monitor an individual’s actual rate of pay to the midpoint of their pay range. The formula for compa-ratio is current base salary / midpoint of the salary range. $45,000 / $46,500 = 0.96 (or 96% of the midpoint). A compa-ratio of <1.0 indicates that the salary range is less than the midpoint. A compa-ratio of > 1.0 indicates that the salary range is greater than the midpoint. Employers generally rely on three factors for wage setting: minimum, midpoint and maximum.

Some employers establish minimum and maximum salary levels at 75 percent and 125 percent of the midpoint, respectively. For example, if the salary range for an executive assistant is $56,000 to $94,000, and the midpoint is $75,000, which means the employee is fully capable of performing all the functions of the job. An employee who hasn’t yet met all the performance goals could receive 75 percent of that midpoint, which is $56,250; the maximum level is 125 percent of $75,000, which is $93,750. Red circle is above the maximum and green circle is below the minimum.