Here’s a chart that will help with evaluating compa-ratios, says Carroll, who is Director of Professional Services & Education at PayScale, Inc.
Internal Compensation Review: Compa-Ratios
| Job Title | Grade | Base | Min | Mid | Max | Compa -ratio | Base> max? |
| Team Leader-Administration | 7 | 95,000 | 54,136 | 64,579 | 76,109 | 1.471 | YES |
| Team Leader-Operations | 7 | 91,000 | 54,136 | 64,579 | 76,109 | 1.409 | YES |
| Sales Leader | 7 | 90,002 | 54,136 | 64,579 | 76,109 | 1.394 | YES |
| Team Leader-Operations | 7 | 83,200 | 54,136 | 64,579 | 76,109 | 1.288 | YES |
| Team Leader-Operations | 7 | 81,120 | 54,136 | 64,579 | 76,109 | 1.256 | YES |
| Team Leader-Operations | 7 | 79,997 | 54,136 | 64,579 | 76,109 | 1.239 | YES |
| CFO | 6 | 130,000 | 74,996 | 89,995 | 104,994 | 1.445 | YES |
| Applications Engineer III | 5 | 76,482 | 53,569 | 64,282 | 74,996 | 1.19 | YES |
| Machine Tool Builder III | 4 | 64,792 | 41,207 | 53,569 | 62,634 | 1.21 | YES |
| Machine Tool Builder III | 4 | 63,170 | 41,207 | 53,569 | 62,634 | 1.179 | YES |
| Machinist II | 3 | 55,411 | 37,200 | 44,640 | 52,081 | 1.241 | YES |
| Machinist II – Department Shift Lead | 3 | 53,560 | 37,200 | 44,640 | 52,081 | 1.2 | YES |
| Customer account manager | 2 | 54,000 | 31,000 | 37,200 | 43,400 | 1.452 | YES |
| Machine Tool Builder I | 2 | 46,509 | 31,000 | 37,200 | 43,400 | 1.25 | YES |
Here’s a group of employees who have a compa-ratio greater than one; in fact, they earn more than the stated maximums for their positions.
Key Questions for Consideration:
- Has XYZ properly defined ranges for all positions?
- Does compensation for individuals who earn more than the stated maximum for their roles warrant further scrutiny—is there a “red circle” opportunity here?
- Does compensation for specific grade levels warrant further scrutiny?
In all the cases above, charting has helped identify areas for further study.
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Five Cost Saving Suggestions
Carroll recommends that employers consider the following possible cost saving ideas:
- Re-evaluate the current market rates for all new hires (replacement and new positions) to avoid the “overpayment” tax in current and future years
- Implement a “red circle” policy to freeze the salaries of all—or a subset—of employees that are over current market rates, eliminating costs associated with performance management and salary reviews
- Institute/reinforce a pay-for-performance approach to salary reviews, increasing salaries only for individuals with stellar performance, thus reducing annual performance increase costs
- Create rigorous salary limits for certain positions/grades (entry level positions may be a place to start)
- Refresh data on current market rates at least every 6 months to ensure that XYZ’s pay ranges are not inconsistent with current market rates
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I wonder how employees react to the use of such charts–do they find compensation decision easier to take with such support or are they offended by the use of charts because, for example, they don’t account for certain intangibles.