Check compa-ratios, check external equity, see who’s over the maximum—it’s not rocket science, but it’s necessary, says Carroll, who is Director of Professional Services & Education at PayScale, Inc.
Quick Review: The Numbers that Matter
Analysis begins with an assessment of internal compensation rates to identify any aberrations (via the compa-ratio) and external equity (via the market-ratio), says Carrol.
Especially important is that you don’t go throwing around terms like compa-ratio when you talk to executives, says Carroll. You don’t want to make executives feel dumb, so when you show them a chart like this, explains carefully what all the numbers and terms mean.
| Annualized Base Compensation | |||||
| Incumbent Job Title |
Base Pay
|
Min
|
Mid
|
Max
|
Compa-ratio
|
| Machine Tool Builder III |
63.2
|
41.2
|
53.6
|
62.6
|
1.2
|
| Machine Tool Builder III |
64.8
|
41.2
|
53.6
|
62.6
|
1.2
|
| Machinist II |
51.3
|
37.2
|
44.6
|
52.1
|
1.2
|
| Facilities Technician |
38.6
|
31
|
37.2
|
43.4
|
1
|
| Applications Engineer III |
76.5
|
53.6
|
64.3
|
75
|
1.2
|
| Programmer/Analyst II |
78.4
|
75
|
90
|
105
|
0.9
|
| Director of Sales, SBU |
82.1
|
75
|
90
|
105
|
0.9
|
| Repairs Technician III |
65.2
|
||||
| Director of Sales, SBU |
72.6
|
75
|
90
|
105
|
0.8
|
| Administrative Assistant I |
10.4
|
19
|
26.6
|
32.3
|
0.4
|
| Machine Tool Builder II |
37.4
|
37.2
|
44.6
|
52.1
|
0.8
|
| Annual Base Comp–Market | |||||
| Incumbent Job Title |
Base Pay
|
25th
|
50th
|
75th
|
Market-ratio
|
| Machine Tool Builder III |
63.2
|
31.2
|
35.9
|
40.8
|
1.76
|
| Machine Tool Builder III |
64.8
|
31.3
|
35.9
|
40.8
|
1.81
|
| Machinist II |
51.3
|
34
|
38.1
|
42.5
|
1.35
|
| Facilities Technician |
38.6
|
27.3
|
31.6
|
36.7
|
1.22
|
| Applications Engineer III |
76.5
|
48.5
|
62.1
|
76.6
|
1.22
|
| Programmer/Analyst II |
78.4
|
60.3
|
69
|
78
|
1.14
|
| Director of Sales, SBU |
82.1
|
73.3
|
89.3
|
106.8
|
0.92
|
| Repairs Technician III |
65.2
|
29.4
|
33.8
|
3931
|
1.93
|
| Director of Sales, SBU |
72.6
|
73.2
|
89.3
|
106.8
|
0.81
|
| Administrative Assistant I |
10.4
|
28.1
|
31.1
|
34.4
|
0.34
|
| Machine Tool Builder II |
37.4
|
28.9
|
33.2
|
37.7
|
1.13
|
In these two charts, you see who’s well over the midpoint, who’s over max, and how it all compares to external pay rates.
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External Compensation Review: Market-Ratios
Here’s an example of a simplified summary of the data:
|
Position Category |
Number of Incumbents |
|
Positions with a Market Ratio less than 0.8 |
19 |
|
Positions with a Market Ratio greater than 0.8 and less than 1.0 |
29 |
|
Positions with a Market Ratio greater than 1.0 and less than 1.2 |
43 |
|
Positions with a Market Ratio greater than 1.2 |
59 |
Key questions to ask after doing this investigation:
- Have we defined the positions correctly, such that the market rate— and therefore the market-ratio —is accurate?
- Where, relative to the market, does XYZ aim to pay?
- Would it make sense for XYZ to consider different target pay rates, relative to market, for different positions?
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Market-Ratio Assessment: By Grade
Here’s a breakout by grade that is very revealing, says Carroll:
|
Position Grade |
1 |
2 |
3 |
4 |
5 |
6 |
7 |
|
Incumbents |
17 |
23 |
28 |
19 |
16 |
9 |
8 |
|
Market Ratio > 1.0 |
7 |
19 |
27 |
13 |
10 |
5 |
7 |
|
% with MR > 1.0 |
41% |
83% |
96% |
68% |
63% |
56% |
88% |
|
|
|
|
|
|
|
|
|
|
Overall workforce |
|
|
|
|
|
|
|
|
% with MR > 1.0 |
68% |
68% |
68% |
68% |
68% |
68% |
68% |
|
|
|
|
|
|
|
|
|
Here we can see that across the workforce, incumbents at two grade levels— three and seven— disproportionately earn high base salaries relative to the market (with grade two not far behind).
In tomorrow’s Advisor, more of Carroll’s analysis charts, plus an introduction to the service that helps with all your compensation challenges, Employee Compensation in [Your State].
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