Organizations need to find their pay sweet spot. If they pay too little, they run the risk of only attracting low-quality talent and losing their existing high-quality employees. Conversely, if they pay employees too much, they aren’t being responsible with the company’s resources. Hence the need to find the sweet spot, the place where pay isn’t too high and it isn’t too low.
In order to determine how much to pay an employee, let me introduce you to the compa-ratio. A compa-ratio is a little number that generally hovers between 80 percent and 120 percent. A compa-ratio tells how far an employee’s pay is from the midpoint of the salary range. If your employee had a compa-ratio of 100 percent, that would mean half of the individuals in that position make more than your employee and half make less. He/she would be right “at market.”
The compa-ratio is easy to calculate. Simply divide an employee's pay by the midpoint of the salary range. We’ll talk about getting the midpoint and salary range in another post. In the image above, note that John’s compa-ratio is low. There is a higher likelihood that he will leave the organization based on pay than Brenda, whose compa-ratio is higher.
It is likely that a company has employees with high and low compa-ratios. Both extremes create challenges for organizations in ways beyond what was mentioned. Fortunately, there are strategies for dealing with both high compa-ratios and low compa-ratios. Compease consultants will walk you through these strategies and help you put a plan in place that works, given your specific circumstances.
But the best strategies in the world won’t help unless you know your employees’ compa-ratios. When you have compa-ratios, you’ll be able to see in just five seconds exactly where your trouble spots are. Compease will provide you with that data. Couple that with Compease’s reporting and expert consultants and you’ll be able to solve problems you didn’t even know existed. And that is how you’ll take your organization to the next level.
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