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Compensation Ratio Formula:
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The Compensation Ratio (CR) compares an employee's salary to the market salary for similar positions. It provides insight into how competitive an employee's compensation is relative to the market standard.
The calculator uses the Compensation Ratio formula:
Where:
Explanation: A ratio of 1.0 indicates the employee is paid exactly at market rate. Values above 1.0 indicate above-market compensation, while values below 1.0 indicate below-market compensation.
Details: Compensation ratio analysis helps organizations ensure pay equity, maintain competitive compensation structures, and make informed decisions about salary adjustments and hiring strategies.
Tips: Enter both employee salary and market salary in dollars. Both values must be positive numbers to calculate a valid ratio.
Q1: What is considered a good compensation ratio?
A: Typically, ratios between 0.8-1.2 are considered acceptable. Ratios below 0.8 may indicate underpayment, while ratios above 1.2 may indicate overpayment relative to market.
Q2: How often should compensation ratios be reviewed?
A: Most organizations review compensation ratios annually as part of their compensation planning process or when significant market changes occur.
Q3: What factors can affect market salary data?
A: Geographic location, industry, company size, experience level, education, and specific skills can all influence market salary benchmarks.
Q4: Should bonuses and benefits be included in the calculation?
A: For a comprehensive analysis, total compensation (including bonuses, benefits, and other incentives) should be compared, not just base salary.
Q5: How can I obtain accurate market salary data?
A: Use reliable salary surveys, industry reports, or compensation benchmarking services that provide data specific to your industry and location.