Compa Ratio

Meaning & Definition

The Compa ratio is a measurement of how compensation compares to an individual’s range of compensation in their position. Should they pay or receive compensation at this level? The Compa Ratio is calculated by taking the current Salary divided by the midpoint of the Market or Internal Salary range.

Importance of the Compa Ratio

• Determines whether an employee is being compensated too little or too much.
• Supports the establishment of consistent and equitable salaries among employees.
• Provides a means of budgeting for all increases and promotions.
• Improves internal pay equity and transparency.
• Ensures that an employee’s compensation is consistent with market benchmarks.

Compliance & Policy Considerations 

• Indian Labour Law does not define Compensatory Ratios, but they are used as part of internal employee compensation and reward metrics.
• Compensation decisions must always comply with the Minimum Wage Laws of India, where applicable.
• All payment structures should be based on documented compensation and salary policies.
• Compensation practices must also adhere to equal pay principles in order to prevent discrimination.

Note: The application of the Compensatory ratio is not specifically mandated by law; however, all compensation practices must comply with any minimum wage legislation.