The Astron Road Show
 

It’s here!  It’s time for the 2007 National SHRM Conference.  If you’ll be in Las Vegas next week, be sure to stop by Astron’s booth, #2625 / 2627.  We’ll be demoing our web-based Talent Management system, as well as giving away a variety of prizes.  Try your luck at our wheel of chance!  The entire Astron team is going to be working the booth.  We look forward to seeing you in Vegas!

Effective June 1^st, National Director Jennifer Loftus started a three year term on SHRM’s Total Rewards Special Expertise Panel.  The panel meets throughout the year to proactively determine areas of interest to Total Rewards specialists and HR generalists.  In addition, the panel conducts research during the year and prepares White Papers published by SHRM.

The Astron Solutions team will be out of the office from June 21^st through June 27^th, attending the SHRM conference and enjoying a few days of vacation.  During this time, we’ll periodically be checking e-mails and voicemails.  If you have an urgent concern, the best way to reach your consultant is to leave a voicemail.  We’ll be back to full speed the week of July 2^nd.

Compensation 101: What is a Compa Ratio and How Do I Use It?
 

It’s that time of year again. Your organization is conducting performance reviews. There’s general mayhem as both your highest- and lowest-performing employees scramble to finish the most work possible in order to attain the highest rating and to get that elusive increase in pay.

OK, while this may not be a realistic depiction of your organization, at the very least it is safe to assume that most of your employees want to do well enough to qualify for some kind of financial promotion. However, taking into consideration an employee’s performance rating alone often does not reveal the true market value of that performer.  The performance rating taken in tandem with an employee’s compa-ratio reveal a fuller picture.

For those perhaps a bit unfamiliar with the terminology, while they are sometimes referred to as “compensation” or “comparison” ratios, the “compa-ratio” is defined as the percentage obtained by dividing the actual salary paid to an employee by the midpoint of the salary range for that position. Simply put,

CR (Compa-ratio) = AS (actual salary)              X       100
                      MP (midpoint of pay range)

It’s a very simple formula, and a powerful one when it comes to deciding how large of a raise in pay an employee needs at a given time. It allows an organization to understand how an individual’s pay relates to the organization’s pay ranges and the market. If the individual’s compa-ratio is 100%, then the individual is already being paid what a competent performer would be. Following is an example which demonstrates how to calculate an individual employee’s compa-ratio.

Let’s say the market pay range for the average receptionist position is between $20,000 and $28,000 per year, with the midpoint of those two at $24,000 per year. If there are five actual receptionists who earn (respectively) $21K, $23K, $24K, $26K, and $28K/per year, then the compa-ratios would be as follows:

Receptionist A – 21/24 = .875 x 100 = 87.5%
Receptionist B – 23/24 = .958 x 100 = 95.8%
Receptionist C – 24/24 = 1 x 100 = 100%
Receptionist D – 26/24 = 1.083 x 100 = 108.3%
Receptionist E – 28/24 = 1.167 x 100 = 116.7%

Here are five clear percentages. The former two are below what a fully competent solid performer should be paid, the middle figure is exactly at midpoint, and the latter two are above the midpoint for the given position.

But how does one use compa-ratios? Well, while pay scales always have a defined range, so too do compa-ratios. As outlined on the website of Australia’s National Remuneration Centre there are ordinarily five zones, each associated with a pre-defined level of performance:

“A commonly accepted range for compa-ratios is 80% to 120%, which in turn can be divided into five zones, ie:

80-87%
88-95%
96-103%
104-111%
112-120%

Each one of these zones is associated with a pre-defined level of performance, with 100% representing fully competent performance in the job.

The five compa-ratio zones range from the lowest level for new, inexperienced incumbents, or unsatisfactorily performing incumbents, through to the highest level reserved for those universally recognized as outstanding performers.

A broad definition of each zone is therefore:

• 80-87% - new, inexperienced, or unsatisfactorily-performing incumbents.
• 88-95% - those gaining experience but not yet fully competent in the job.
• 96-103% - fully competent performers performing the job as defined.
• 104-111% - those consistently performing the job at a lever higher than what the job definition requires.
• 112-120% - those universally recognized as outstanding performers, both inside and outside the organization.”

If we use these zones to compare the salaries of the aforementioned five receptionists, Receptionist A would be making a salary comparable to that of an unsatisfactorily-performing employee; B and C, that of a fully-competent performer; D, a higher-level performer; and E, an excellent performer. Comparing these five percentages with the actual performance of each receptionist will indicate necessary changes to the individual’s pay. Ideally, an employee’s performance should of course match the compa-ratio range into which their salary falls.

“Compa-ratios are a valuable tool for obtaining a benchmark of employees’ salaries against pre-determined standards,” explains National Director Michael Maciekowich.  “While using compa ratios lock-step with pay raises may hinder an organization’s flexibility, the figure can be helpful in ensuring that top performers receive the compensation commensurate with their contribution.”

Looking for a top-notch presenter for your human resource organization's meeting? Both Jennifer Loftus and Michael Maciekowich present highly-rated sessions on a variety of compensation and employee retention issues. For more information, send an e-mail to info@astronsolutions.com.

Are you reading a pass-along copy of Astronology? Click on this button to start your own subscription today!

Send inquiries to info@astronsolutions.com or call 800-520-3889, x105.

To remove yourself from this list, please follow your personalized subscriber link at the bottom of your Astronology alert e-mail.

Copyright 2007, Astron Solutions, LLC

ISSN Number 1549-0467