Do you pay well and fairly? Compa-ratio, market percentiles and salary bands
How to read the compa-ratio, your position against the market and the out-of-band share.
In compensation, a lot of money gets decided with little analysis. The usual cause is the tooling: with an inherited spreadsheet and a market survey in PDF, every question takes a week to answer. A few well-built indicators answer most of what a committee asks.
Number 1 · Compa-ratio: where does each person sit within their band?
The compa-ratio is a person’s salary divided by the midpoint of their band. It puts salaries from different roles on a single scale:
| Person | Role | Salary | Band midpoint | Compa-ratio | Reading |
|---|---|---|---|---|---|
| A | Analyst | COP 3.1M | COP 3.3M | 0.94 | Healthy |
| B | Analyst | COP 2.4M | COP 3.3M | 0.73 | Below the band: attrition risk and exposure to a pay-equity claim |
| C | Coordinator | COP 6.9M | COP 6.0M | 1.15 | High: worth checking whether it reflects performance or an old negotiation |
| D | Manager | COP 9.2M | COP 9.7M | 0.95 | Healthy |
| E | Manager | COP 12.4M | COP 9.7M | 1.28 | Above the band: freeze raises or redefine the role |
In a band of ±20% around the midpoint, a compa-ratio between 0.80 and 1.20 is within band, and between 0.90 and 1.10 there is usually nothing to review.
Band from COP 2,640,000 to COP 3,960,000 (±20% of the midpoint). Move the salary and watch the three figures change.
- Compa-ratio
- 0.94
- Range penetration
- 34.8%
- Zone
- Healthy range
Nothing to review.
| Monthly salary | Compa-ratio | Range penetration | Zone |
|---|---|---|---|
| COP 2,400,000 | 0.73 | -18.2% | Outside the band, below |
| COP 2,800,000 | 0.85 | 12.1% | In the band, below the healthy range |
| COP 3,100,000 | 0.94 | 34.8% | Healthy range |
| COP 3,300,000 | 1.00 | 50.0% | Healthy range |
| COP 3,800,000 | 1.15 | 87.9% | In the band, above the healthy range |
| COP 4,150,000 | 1.26 | 114.4% | Outside the band, above |
Two people in the same role with compa-ratios of 0.73 and 1.15 call for a review. If there are a hundred of them, the company has a turnover risk, a morale risk and, increasingly, a legal one.
Number 2 · P50/P75: which market are you benchmarking against?
The market P50 is the salary that splits the sample in two: half of the data points fall below it and half above. The P75 leaves three out of four below it. The underlying decision is which percentile to choose for each job family:
- In roles where you compete for scarce talent (data, technology, specialized sales), aiming for P75 on total compensation can be cheaper than replacing the person. Run the numbers with what a replacement costs you.
- In broad-market roles, P50 with distinctive, well-communicated benefits usually pays off more than moving up a percentile.
- Declaring “we pay at P75” and never measuring it does not work. Real positioning is calculated person by person against the market curve.
Number 3 · Percentage out of band
This is the share of the headcount paid below the floor or above the ceiling of their band. It summarizes the state of the whole scheme:
- < 5%: the system is governed and the out-of-band cases have a known explanation.
- 5–15%: the scheme exists, but exceptions are piling up. Review the offer and promotion process.
- > 15%: the bands no longer describe what is actually paid. Redesign them before adjusting salaries, because the market has probably moved and the bands were not updated.
The gender pay gap: where to look for it
A common mistake is comparing the average salary of men and women across the whole company. That number blends levels, areas and tenure, and it can hide real gaps or show gaps that do not exist (Simpson’s paradox). The measurement is done by level and job family:
- Gap by level = (average male salary − average female salary) / average male salary, within the same level. In the talent dashboard, that calculation gives 4.6% at the Manager level and 8.7% at the Director level, gaps the company-wide average does not show.
- The compa-ratio completes the picture: if women at a level average 0.93 and men average 1.01, the gap comes from how they were paid on joining and on promotion, and that is where it gets fixed.
- The closing plan prioritizes cases by gap size and risk, has an explicit budget and is verified in the next cycle. Without a budget, the audit changes nothing.
Where to start
If you can only do one thing this quarter, calculate the compa-ratio for the entire headcount and plot the distribution by level and gender. With the data ready it is a day’s work, and it gives you the year’s compensation agenda: who is out of band, where the gaps are and how much it costs to close them.